Different Inflation Views Overstated: Cleveland Fed

Economists at the Federal Reserve Bank of Cleveland contend that demographic differences in inflation expectations have been overstated, according to research released Tuesday.

Averaging inflation expectations across different groups, Cleveland Fed economists Brent Meyer and Guhan Venkatu said there is “little meaningful difference” in Americans’ inflation expectations.

And that is significant, they said in an Economic Commentary essay, because “macroeconomists have come to believe that inflation expectations are a key determinant of actual inflation” and have “important implications for policymakers.”

Quoting Federal Reserve Board chairman Ben Bernanke as saying, “an essential prerequisite to controlling inflation is controlling inflation expectations,” the Cleveland Fed researchers wrote: “Consequently, monitoring and measuring the public’s inflation expectations is of enormous importance to the monetary authority.”

However, there are measurement problems.

“Unfortunately, survey measures of the public’s inflation expectations tend to generate responses that appear at odds with actual experience,” the two economists wrote.

“And systematic differences across demographic groups that aren’t easily explained by economic factors have led some to wonder whether these surveys are actually providing meaningful information on inflation expectations to policymakers,” according to Meyer and Venkatu.

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