US: Inflation expectations remain well anchored — Wells Fargo

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The University of Michigan report on consumer sentiment (September – preliminary) showed a modest decline in inflation expectations and a recovery in the main index. According to Wells Fargo analysts, the most remarkable thing about the latest sentiment survey is that inflation expectations remain so well anchored. They note that after this week’s CPI surprise, Federal Reserve officials may be breathing a little easier.

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“After the surprise to the upside in August consumer inflation earlier this week, it is remarkable that inflation expectations remain so well anchored. Consumer expectations for inflation for the coming year fell to 4.6% from 4.8% in August, marking the lowest reading in twelve months.Long-term expectations over a 5- to 10-year horizon have also eased, settling at a 14-month low of 2.8%.These readings are consistent with other measures of inflation expectations, such as those in the Federal Reserve Survey of Consumer Expectations, and suggest that, at least to some extent, consumers are not intimidated by the persistently high level of current inflation.

“The Fed will be pleased that medium- and long-term expectations remain within the range of past decades, or what it calls “untied” expectations. As long as expectations remain low, it’s one thing for the Fed not to accelerate rate hikes.”

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“Therefore, the FOMC is likely to take note of expectations at next week’s meeting as a positive development in an otherwise stubborn inflation environment and gloomy economic backdrop.”

Source: Fx Street

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