Despite expanding economic activity across the U.S., inflation expectations continue to drop. Month by month, expected inflation has dropped, not just for the near-term, but even for as far as 10-years out. This is shown by the chart below which was built by Macro Musings using Cleveland Fed data.
Usually the greatest check on a central bank’s ability to stimulate the economy is the threat of inflation. Yet this threat is at least perceived to be falling, even from the already puny levels of April. It’s charts like this that make Ben Bernanke feel disinflation (low, falling inflation) or deflation (falling prices) are a far greater threat than inflation. Which means the U.S. federal reserve probably doesn’t feel like its stimulus decisions are restricted by inflationary risks at all right now.
We’ll hear it from the horse’s mouth when we hear Ben Bernanke’s latest statements today at 2pm.