The view that the Federal Reserve is in danger of losing control of US households’ inflation expectations was expressed on Wednesday by the President of the Fed of St. Louis, James Bullard.
“I think we are on the verge of losing control of inflation expectations,” he said during a speech at the Memphis Economic Club.
“That’s why it’s important for the Fed to take action today that will be credible, which will keep inflation expectations low and stable,” he added.
The Fed is closely monitoring inflation expectations. Although difficult to measure, a key indicator for the Fed’s policy is that keeping inflation expectations low and stable will help reduce inflation.
Bullard presented a chart with three indicators of inflation expectations moving higher.
Inflation soared last year as the US economy recovered from the crisis caused by the coronavirus pandemic. The Fed’s preferred index for inflation, the personal consumption expenditure index, ran at an annual rate of 6.3% in April, well above the 2% target set by the Federal Reserve.
Source: Capital
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