When Janet Yellen took the podium for her final news conference earlier this week, there were several oddities. Not only was she a rare Fed chair who did not get re-appointed after achieving arguably strong economic performance – unemployment dropped, inflation remains subdued and the stock market did not crash as quantitative stimulus was extracted – but there were other oddities. In proclaiming the “Phillips curve dead,” Bank of America Merrill Lynch categorized the Fed raising interest rates as being interpreted as “dovish.”

Phillips Curve is dead: Also, night is day and white is black

The Fed “failed to think tax reform leads to higher inflation,” BAML credit strategists Hans Mikkelsen, Yuriy Shchuchinov, Yunyi Zhang observed of the Wednesday move FOMC to notch interest rates slightly higher, 25 basis points. They point to interest rates declining five to six basis points across the yield curve after the afternoon decision buttressing the “dovish” interpretation of the move.

“While that sounds bullish for credit spreads we think it is not, as yields are getting to levels that are sidelining investors,” the report noted. “Hence the lack of post-FOMC tightening of credit spreads. What we think is needed for further spread tightening is more positive news on inflation, which would lead to higher interest rates across the maturity spectrum.”

The US dollar also “got crushed” after the Fed rate announcement, down 69 basis points. Rising interest rates are often considered a catalyst for a higher currency in the sovereign region in which interest rates are rising.

With the dichotomy of a dovish rate rise in place amid pending fiscal stimulus in the form of a tax cut on the horizon, when might inflation rear its head?

Mikkelsen, Shchuchinov, and Zhang think inflation could start to surge as early as the first half of 2018. If this occurs it could mean that the stimulative impact of tax cuts might be offset by central bankers raising interest rates intent on cooling economic activity – either that or central bankers want to “reload” their toolkit in case it is needed to combat an unexpected economic or geopolitical market shock.

Phillips Curve is dead: Where is inflation amid low unemployment? We might find it in 2018, says BAML

In a post-financial crisis world, nothing is what it seems to be. Take the Philips Curve, for instance.

When A.W. Phillips benchmarked the stable inverse correlation between unemployment and inflation, one wonders if he could have envisioned negative interest rates in Europe and central bankers engaging in the purchase of not just sovereign bonds, but also corporate issues.

“Despite a lower trajectory for the unemployment rate, the Fed did not revise up inflation, implying a flatter Phillips Curve,” BAML’s Michelle Meyer, Mark Cabana and Ben Randol observed.

With unemployment near all-time historic lows, the consumer price index (CPI) “disappointed in November,” slowing to 0.1%. Year over year inflation moved lower to 1.7% from 1.8%, with housing a big drag. Housing costs have witnessed extreme divergences depending on the geographic region, with Silicon Valley and many coastal areas at all-time highs amidst the vast middle of the country not experiencing significant growth. Lodging was down 1.3% month over month and owners’ equivalent rent (OER) slowed to

0.2% from 0.3%. Apparel costs “tumbled” 1.3% month over month, as BAML noted medical care services inched down 0.1% over the same period.

“On the positive end, medical care goods rebounded 0.6% and vehicle pricing accelerated to 0.5% from 0.1%,” the report noted, benchmarking the moment in history when medical price increases are seen as a positive.

With record full employment having been achieved under the Yellen Fed, what might it take to move the needle on inflation? “Yellen reiterated factors holding back inflation are likely transitory and acknowledged that the prolonged shortfall remains a risk,” BAML’s Anna Zhou observed.