Longer-run inflation expectations throughout the previous year and a half have actually stayed “remarkably stable” at levels broadly constant with the Federal Open Market Committee’s 2% target, Federal Reserve Bank of New York President John Williams stated today. Speaking at a financial conference in Zurich, Williams stated that keeping well-anchored inflation expectations is a “bedrock principle” of main banking, and the news was “mostly good” on that front with expectations usually falling in the 2% variety. “Inflation uncertainty has increased, but this does not appear to be due to unmoored longer-run expectations,” he stated.
Still, there is a catch, according to Williams. There has actually been a “striking increase” over the previous year in the share of individuals who anticipate deflation 3 and 5 years in the future. In September’s New York Fed Survey of Consumer Expectations, about a quarter of participants had deflation expectations 5 years in the future, which was almost as big as the share anticipating inflation above 4% at the five-year horizon. “The one surprising wrinkle worth further study is the increasing divergence in views about future inflation, including the high share of those expecting deflation, and what this portends for the future,” he stated.