Long-Term Deflation Expectations Rising?

NY Fed President WIlliams'speech on long-term inflation expectations this morning concludes they remain well anchored: US households see the recent rise of inflation as "as likely being less persistent than in prior episodes", with professional forecasters still expecting inflation to remain close to 2% over the longer run.

• However, Williams notes a "surprising wrinkle" that is "worth further study" - there is an increasing divergence in consumer inflation "uncertainty" over the 3-5 year horizon, with rising disagreement in mean expectations as well as in the width of expected inflation distributions.
• While overall long-term inflation expectations have remained anchored since early 2021, there has been a significant increase in the share of respondents to the NY Fed's Survey of Consumer Expectations that expect deflation over the long term.
• The September SCE survey shows about 1/4 of respondents expect deflation 5 years in the future, similar to the proportion seeing inflation above 4% 5 years out. And if anything, the trend is toward rising deflation expectations, while expectations of 4+% inflation are falling.
• This counter-intuitive finding could be due to the way respondents think of inflation - are some respondents merely saying that inflation can't go higher from here, so disinflation is expected further out? (Williams notes the UMich 5-10Y inflation survey showed similar trends toward deflation.)
• Either way, this challenges the "uncertainty" part of Williams' 3 criteria for well-anchored expectations (the others are "sensitivity” and “level", which appear to be met).