For all the hysteria that the U.S. Federal Reserve is pursuing a policy of dollar devaluation and high inflation, latest data from the Philly Fed shows this concern just doesn’t add up so far.
Expected inflation is actually falling right now, and is at the lowest level it has been in at least 10 years. There’s thus far less market concern about high inflation now than existed pre-Bernanke, and it shows how the Fed has actually been very successful thus far, providing the U.S. with stimulative monetary policy while correctly judging that deflationary forces would more than cancel out any resultant inflationary threat.
Recalling President Reagan’s statement, “Facts are stupid things”, it’s no surprise that the disinformation campaign arguing that the Fed has been pressured into engineering a bout of high inflation continues.
Look at the blue line below.
Figure 2: Median expected 10 year CPI inflation (blue) and 1 year CPI inflation (red). recession dates shaded grey. Quarterly observations pertain to mid-quarter month. Source Philadelphia Fed Survey of Professional Forecasters, NBER, and author’s calculations.
10 year average expected inflation is 2.2!
Inflation is hence expected to be historically low over the next decade, which means that going forward the dollar could be ‘debased’ by less than it has been during the previous decade. This will be a shocker for all those betting on high inflation, if it comes to fruition.
(H/T Free Exchange)