The amount of sheer nonsense written about inflation expectations is staggering.
Let’s take a look at some recent articles before making a mockery of them with a single picture.
On July 17, 2017, Rich Miller writing for Bloomberg proclaimed The Fed Has an Inflation Expectations Problem.
Expectations matter because they shape how households and companies act and thus can go a long way in determining where inflation actually ends up. Consumers accustomed to meager inflation will resist paying up for goods and services.
“Lower inflation expectations make it all the more difficult for the central bank to achieve its inflation objective,” Charles Evans, president of the Chicago Fed, said in remarks posted on the bank’s website on July 14.
The Business Insider says The Fed is missing a key sign of economic weakness coming from American consumers.
Andrew Levin, a career Fed economist who was a special adviser to Fed Chairman Ben Bernanke, told Business Insider he was worried by a noticeable decline in inflation expectations, both as reflected in consumer surveys and bond-market rates.
“The reality is that the longer-term inflation expectations of consumers and investors have shifted downward by about a half percentage point. Thus, even with the economy moving towards full employment, it’s not surprising that core PCE inflation remains about a half percentage point below the Fed’s inflation target,” he said, referring to a closely watched reading indicator that excludes food and energy costs.
“If the FOMC continues to ignore the downward drift in inflation expectations and simply proceeds with its intended path of policy tightening, actual inflation is likely to keep falling short of the Fed’s target and might well decline even further,” he said.
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