DATA_608_Story_02

Disclaimer:

• The main focus of this assignment will be to select the right visuals that will render the substance of our data.

• The data utilized are accessed through available APIs and ran from 2001-03-01 through 2026-02-01.

Introduction:

The relationship between inflation and unemployment is one of the most studied topics in macroeconomics. Traditionally, economists have described their interaction through the Phillips Curve, which shows a negative relationship between the two: when inflation rises, unemployment tends to fall, and when inflation falls, unemployment tends to rise. However, this relationship is more complex than it first appears. The Federal Reserve’s mandate from Congress is to control inflation and to maintain low unemployment. These seem to be contradictory objectives.

Has the FED been able to fulfill the mandate given to it by Congress?

Considering the following data for the last 25 years:

• The Consumer Price Index (CPI) (Bureau of Labor Statistics)

• The FED Funds Rate (FRED) (Federal Reserve Board)

• Unemployment Rate  (Bureau of Labor Statistics),

we will answer the question above.

• Loading Packages and Libraries

• API Keys set-up

• Data Download

• Transform and Join Data

• Visualization

Comment:

A review of the plot highlights three major economic disruptions: the dot‑com downturn of 2000–2001, the 2008 financial crisis, and the COVID‑19 recession in 2020. Outside of these shocks, both inflation and unemployment generally move along a relatively steady and predictable path. However, during each of these major events, the data reveal a clear inverse relationship between unemployment and inflation, reflecting the typical economic stress associated with recessions. Although neither unemployment nor inflation is directly controlled by the Federal Reserve, the Fed Funds Rate; the main monetary policy instrument used to influence economic conditions, shows a consistent downward adjustment during these episodes. This pattern suggests the Federal Reserve’s deliberate efforts to stabilize the economy by encouraging borrowing, spending, and investment during periods of distress. In this sense, the observed policy actions indicate that the Fed has actively used its primary tool, the Fed Funds Rate, to support its congressional mandate of promoting maximum employment and stable prices.

Comment:

The negative bars in the monthly Fed Funds Rate–unemployment comparison suggest that rate hikes are not linked to higher unemployment. This implies that the two variables are not strongly correlated.

Conclusion:

The lack of a clear correlation between the federal funds rate and unemployment suggests that the Federal Reserve is actively working to balance both objectives of its congressional mandate. The opposite would suggest a “natural phenomenon”.