The job of the Federal Reserve has often been compared to (mistakenly, though) the above, wherein they have to navigate the economy on its dual mandate of maximum employment and price stability. The Phillips Curve is the most standard model that depicts this supposed inverse relationship between unemployment and price inflation.

Neo-Keynesian economics has broadened the interpretation of the Phillips curve from unemployment to include economic growth. So, the narrative is that if the economy is operating below potential in terms of GDP growth rate or employment, then the Federal Reserve would reduce the Fed Funds rate to stimulate the economy. If price inflation exceeds the 2% mandate, the Federal Reserve would raise the Fed Funds rate to dampen the price inflationary forces.

But what happens if the growth is below par or unemployment numbers are high, AND concurrently, price inflation numbers are high? Technically, the economic scenario is called "Stagflation".

Just a year back, when Powell was quizzed about the possibilities, he quipped, "I don't see the stag or the -flation, actually." 

A short twelve months later, that is precisely the situation in front of Powell.

How do the Keynesians explain "Stagflation"?

They don't; they hope that it doesn't occur during their tenures.

Paul Volcker was the last Fed Chairman who had to handle a similar situation, and even he would not want to step into the shoes of Powell today. The condition is much worse on a logarithmic scale. The solution though remains the same: dramatically hike interest rates. However, it cannot be implemented today, as it would collapse the system due to the substantial debt.

But let us step back a bit and examine the entire hypothesis of this employment-price inflation tradeoff.

At the outset, followers of Austrian Economics would know that this Phillips Curve and what it represents is almost as mythical as the sea monsters. It is the combination of Cantillon effects and the misrepresentation of price inflation that creates this illusion of trade-offs between employment and price stability.