Is the Federal Reserve wrong on unemployment/inflation?

The stock market is down today on a a relatively strong jobs report, because New Keynesian economics and the Phillips Curve say unemployment must rise to lower inflation.

The Bank of International Settlements in its 2022 Annual Report questioned the reliability of the Phillips Curve in the current economic environment of post Pandemic supply chain disruption aggravated by the Ukraine -Russia War with its food and natural gas/oil supply disruptions.

 The wage and price-setting mechanisms and interactions at the very heat of the inflation process are glossed over in the Phillips Curve process hiding the play between worker's bargaining power and capital and resulting in a flattening of the Phillip's Curve.  Studies have shown that in an open economy with a fiat currency, it is possible to have a dramatic increase in employment and a flat Phillips Curve whereas in  a flexible exchange economy a trade-off between inflation and unemployment is unavoidable.

The American Rescue Plan provided a necessary stimulus to the post pandemic lock down and

provided approximately 3 tenths of one percent on the core inflation index in 2021 and 2 tenths of one percent in 2022.  Inflation was transitory until Covid-19 has continued to persist, China's overly strict Covid-19 lock downs continuing to this day aggravating supply chain problems, and Russia invaded Ukraine creating additional economic shocks.

Oil prices have been coming down despite US oil refineries still not producing at pre-pandemic levels, until OPEC just decided to reduce daily production by 2 million barrels per day to keep oil prices higher creating another economic shock at a time when US oil refineries are undergoing seasonal down periods to to change from Summer to Winter fuel products and when additional refineries on the West Coast and Midwest had unscheduled downs for repairs.  Despite OPEC's decision whichfavors Russia, it also economically benefited other OPEC members such as Saudi Arabia, who have significantly more profitable business activities with China than the US and are gambling that the United States will consider the active military aid and US troops in place in Saudi Arabia and UAE strategically more important and keep the aid and troops in place to defend Saudi Arabia and UAE from Yemeni missiles and Iranian influence.  Saudi Arabia is particularly playing China (an Iranian supporter) and the United States against each other.

Today's employment report shows increased employment in construction and manufacturing which you would want to see to solve supply chain disruptions.  Service industry jobs increased consistent with a recovering economy.  Education jobs were down because they are not paid enough to work in stressful situations or in State's which do not want teachers to teach unless they tow a political line without respect to factual history, science, or reality.  Labor participation is down, but on the whole at a pre-pandemic level.  This was a solid employment report that a healthy economy would want to see.

New Keynesian economic theory is not the route the Federal Reserve should be following in these exceptional times.  

You need only ask yourself what would you choose: having a job or low inflation with unemployment?

*Typo corrected 9/5/2023

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