Econ finds the monthly FedViews forecast from the Federal Reserve Bank of San Francisco web site to be a good source for up-to-date information on inflation trends.
FedViews typically discusses recent inflation measures and contains an up-to-date assessment of future inflationary trends. Borrowers who make payments that are based on nominal interest rates—say an adjustable rate mortgage or a credit card that is priced based on the prime rate—also face a risk.
In this case the risk is that their nominal loan payments will rise with inflation and interest rates. Blanchard, Oliver. See Chapter 9. Rose, Peter S. See Chapter 9 for additional information on the structure of interest rates.
Selected Interest Rates H. Stiglitz, Joseph E. See Chapter 4. Skip to content Readability Tools. Reader View. Dark Mode. High Contrast. Reset All. Publications How would a change in inflationary expectations affect nominal interest rates and the yield curve?
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Have you read? US inflation has remained 'stubbornly low': the IMF explains why. Survey evidence for Lucas's conjecture. A direct test of the hypothesis: Household CPI. Figure 3 Relationship between personal inflation and inflation expectations. A direct test of the hypothesis: Frequency CPI. License and Republishing. Written by. More on Global Economic Imbalances View all. Emma Charlton 22 Oct What is 'stagflation' and what does it mean for the future economy? However, because the Fed has fallen short of its 2 percent objective for some time, some Fed officials worry that inflation expectations may be straying from target.
So, for example, if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored. If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored.
As a result of the persistently high inflation in the s and s, inflation expectations became unanchored and rose with actual inflation—a phenomenon known at the time as a wage-price spiral. This cycle plays out as follows: high inflation drives up inflation expectations, causing workers to demand wage increases to make up for the expected loss of purchasing power.
When workers win wage increases, businesses raise their prices to accommodate the increase in wage costs, driving up inflation. The wage-price spiral means that when inflation expectations rise it is difficult to bring down inflation, even if unemployment is high. This seems to suggest that consumers expect inflation to rise above its current trend over the next ten years. However, consumers also perceive actual inflation to be higher than its official readings.
For this reason, analysts focus on the trend in these surveys—whether consumers expect the pace of inflation to be rising, falling, or remaining stable—rather than the level of expected inflation. One widely used gauge of market-based inflation expectations is known as the year breakeven inflation rate. The Regional Economist addresses the regional, national and international economic issues of the day. Views expressed are not necessarily those of the St.
Louis Fed or Federal Reserve System. Regional Economist. April 13, By James Bullard. See www. Also see Bauer, Michael D.
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