Thanks so much that’s a helpful list. I have also seen “criticism” of whether 2% is the right target or not but seems like the so far the Fed has kept to this as the right level that keeps the economy humming along
It is debatable but that 2% target seems to keep things stable from the global central banks point of view. It will be quite hard for them to raise it or lower it especially people will interpret that move and start changing long term inflation expectations and immediately act on that move!
Very informative, thank you! I often think about how much the so called "inflationary psychology" plays a role. If folks think interest rates will increase, for instance, they will make large purchases before it does. This further exacerbates the inflation problem. Would be interesting to see how this data can be layered on (although consumer psychology can't be put into numbers that easily).
Thanks so much Katarina for your comments and shrewd observation! Indeed as you said the FED looks at and measures consumer inflation expectations (probably like a hawk) given their dual mandate of maintaining price stability and maximum unemployment. You might have heard the word anchoring long-run-inflation at “2%” by the FED repeatedly because inflation can go up short-term but if long-run expectations do not change much, then the FED does not need to change monetary policy. But imagine inflation ticks up and people start to worry about higher future inflation and then they demand more wages to compensate 😳…a wage-price spiral!
Thanks so much that’s a helpful list. I have also seen “criticism” of whether 2% is the right target or not but seems like the so far the Fed has kept to this as the right level that keeps the economy humming along
It is debatable but that 2% target seems to keep things stable from the global central banks point of view. It will be quite hard for them to raise it or lower it especially people will interpret that move and start changing long term inflation expectations and immediately act on that move!
Very informative, thank you! I often think about how much the so called "inflationary psychology" plays a role. If folks think interest rates will increase, for instance, they will make large purchases before it does. This further exacerbates the inflation problem. Would be interesting to see how this data can be layered on (although consumer psychology can't be put into numbers that easily).
Thanks so much Katarina for your comments and shrewd observation! Indeed as you said the FED looks at and measures consumer inflation expectations (probably like a hawk) given their dual mandate of maintaining price stability and maximum unemployment. You might have heard the word anchoring long-run-inflation at “2%” by the FED repeatedly because inflation can go up short-term but if long-run expectations do not change much, then the FED does not need to change monetary policy. But imagine inflation ticks up and people start to worry about higher future inflation and then they demand more wages to compensate 😳…a wage-price spiral!
A good set of graphs to monitor about consumer expectations is here: https://www.newyorkfed.org/microeconomics/sce#/