Powell Says Inflation Expectations as Anchored, in a Good Place

Q: Would you describe long-term inflation expectations as still well-anchored? Would the Fed consider publishing its index of common inflation expectations on a monthly basis?

• A: We do tend to look at longer term expectations because we think that is really what matters for inflation. The shorter term ones do tend to move around based on, for example, gasoline prices. You will see if gas prices were to spike you will see shorter term inflation expectation measures - particularly surveys - move up. That is not a good signal for future inflation if gas happens to spike and go back down again.
• If you look at the broad range of longer-term expectations, they have moved up, they moved down during the beginning of the pandemic, sort of further exacerbating concerns that we might find ourselves where, for example, the ECB and bank of Japan have been, where expectations and inflation itself sliding down and you have a hard time stopping that process once it begins. That was a concern. It's good actually to see longer term inflation expectations move back up to a range that is consistent with what our objectives are.
• These are not precise measures. They contain risk premia of various kinds. That is why we look at a broad range of them and tend to look at the movement of that broad range of indicators, which are from surveys of economists / public/ and market-based. We look at that and see them back in the range where they were, and by the way, they have been broadly higher than that, somewhat modestly higher than that, not so many years ago at a time when inflation was still anchored, and at around 2 percent or maybe even below.
• The answer is yes, I think they are anchored and they are at a good place right now. It is gratifying to see them move up off the pandemic lows. It's fundamental in our new framework to assure that inflation longer term inflation expectations are anchored at a place that is consistent with our goal. If inflation expectations are not anchored at a place consistent with your goal it is not clear why you would expect to hit your goal over the longer term. So it is important.