MNI BRIEF: Long Run US Inflation Expectations Stable - Paper

The inflation experience of the last five years has not left a lasting impact on long-run inflation expectations, consistent with central bank credibility, according to a paper co-authored by Federal Reserve Bank of Philadelphia President Anna Paulson and presented at a conference Saturday in Philadelphia. 

"The remarkable stability of long-term inflation expectations throughout the period of elevated inflation suggests this view held even when inflation was at its peak," write Andrew Hertzberg, Wenli Li and Anna Paulson. "Perhaps the unusual nature of the pandemic has led people to place less weight on this experience as a guide to the future. It is also consistent with central bank credibility and a belief that central banks will get inflation back to target." 

Current market yields on Treasury Inflation-Protected Securities (TIPS) contracts imply bond traders expect U.S. CPI inflation to average around 2.2% over the five-year
period that begins five years from now, which is consistent with the Fed’s 2% inflation target, the paper said, noting similar trends for other major developed economies and from survey evidence. (See: MNI: Fed Biased To Ease With Focus On Jobs - Ex-Officials)