The Federal Reserve's new strategy of average inflation targeting that will allow inflation to spend as long above the 2% target as it has done below it without the Fed tightening policy is an admirable goal, but market-based inflation expectations still struggle to see inflation reach the 2% target over a 5 year horizon. Although consumer surveys appear more in line, the University of Michigan's consumer survey shows 5-year inflation expectations little changed from pre-pandemic levels - never mind since before the Fed's new strategy - and lower than the 1 year expectations of 2.7%. Somewhere in between perhaps? Or just a more distant prospect that takes more than 5 years?
Chart by Ritvik Carvalho and commentary by Mike Dolan.
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