Federal Reserve officials believe inflation can decline toward the 2% target without a significant rise in unemployment, provided businesses expect price pressures to ease and moderate their increases. The Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, stood at 3.7%, while unemployment was 4.1% and wage gains remained moderate. The strategy depends on anchored expectations rather than a sharp reduction in demand, challenging the traditional Phillips curve, which describes an inverse relationship between inflation and unemployment. Officials acknowledge that persistent energy, tariff or demand shocks could force the Fed to weaken consumption, investment and employment. The Fed’s latest projections show inflation remaining above target until 2029, with policymakers anticipating one additional quarter-percentage-point rate increase this year, while investors expect three more increases through April. Stronger demand, labor-market pressure or inflation linked to the artificial intelligence boom could prompt a faster response.