Unemployment is low. It is close to the Fed's full-employment rate. So according to the Philip's curve, which says that inflation is generated at full-employment, we should be seeing some inflation, right? but we aren't. So what's up?

Let's take a good read of chapter 3 in Keynes' General Theory.

• "Let Z be the aggregate supply price of the output from employing N men, the relationship between Z and N being written Z = φ(N), which can be called the Aggregate Supply Function.[5] Similarly, let D be the proceeds which entrepreneurs expect to receive from the employment of N men, the relationship between D and N being written D = f(N), which can be called the Aggregate Demand Function."

Now realize here that the demand curve rises as N, employment rises. So it is not like the traditional demand curve that slopes downward.

• "Now if for a given value of N the expected proceeds are greater than the aggregate supply price, i.e. if D is greater than Z, there will be an incentive to entrepreneurs to increase employment beyond N"

Ok... proceeds are good, profits are rising, so more people are employed.

• "... and, if necessary, to raise costs by competing with one another for the factors of production, up to the value of N for which Z has become equal to D."

Look closely here at the words, "if necessary". It may not be necessary to compete for the factors of production as production gets close to full-employment. yet realize that economists take this as fact and base monetary policy upon it.

• "Thus the volume of employment is given by the point of intersection between the aggregate demand function and the aggregate supply function; for it is at this point that the entrepreneurs’ expectation of profits will be maximized."

OK... profits have been maximized, employment is near full-employment, but maybe it wasn't necessary for firms to compete on wages.

• The value of D at the point of the aggregate demand function, where it is intersected by the aggregate supply function, will be called the effective demand."

The key now is to understand what effective demand is. From my research, effective demand is a cap upon employment of capital and labor. And when effective demand decreases, you can have a situation where full-employment is below what normally seemed before like full-employment.

• "This analysis supplies us with an explanation of the paradox of poverty in the midst of plenty. For the mere existence of an insufficiency of effective demand may, and often will, bring the increase of employment to a standstill before a level of full employment has been reached."

If there is deficient effective demand, the actual level of employment will fall short of the potential labor supply at the existing real wage. So we have a situation where actual level of employment is falling short of normal full-employment effects.

In effect, the inflation of the Philip's curve is not a necessary consequence of full-employment. The Fed and many other economists seem to think it is.