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Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)
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Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Jeremy B. Rudd
New York Fed, 2021
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Editorial Rating

9

Qualities

  • Analytical
  • Innovative
  • For Experts

Recommendation

Supply-chain bottlenecks, energy shortages and surging demand in a post-COVID-19 world have ignited inflation fears. But the assumption “that expected inflation is a key determinant of actual inflation” is getting pushback from Federal Reserve economist Jeremy B. Rudd. In this contrarian analysis, he examines the basis of the inflation-expectation hypothesis and its efficacy in predicting price dynamics. Economists, policy experts and executives will find a timely and insightful look at inflation mechanics in this cutting-edge report.

Take-Aways

  • A staple of monetary theory says that expected inflation is a major factor in actual inflation, but little evidence supports the notion.
  • Officials can better shape inflation projections based on trends in economic conditions.
  • Central bankers should avoid overconfidence in managing inflation.

About the Author

Jeremy B. Rudd is a senior advisor for the Board of Governors of the Federal Reserve.

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