Inflation Expectations in the U.S.: Linking Markets, Households, and Businesses
IMF Working Papers, November 13, 2020
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- Inflation Expectations in the U.S.: Linking Markets, Households, and Businesses
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Bibliographic details
- Authors: Peter D. Williams
- Published: November 13, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513561158.001
Summary and main findings
- Inflation has been below the Federal Reserve’s target for much of the past 20 years, creating worries that inflation may be deanchoring from the FOMC’s target.
- The paper estimates long-run inflation expectations using a factor model that incorporates information from:
- professional forecasters,
- household and business surveys,
- the market for Treasury inflation protected securities (TIPS).
- Long-run inflation expectations have fallen notably in the past few years — to roughly 1.9 percent for CPI inflation, well below the FOMC’s target.
- Evidence suggests that, even before the covid recession, the private sector viewed the economy as likely to suffer from persistent headwinds to inflation.
Methodology and key concepts
- Uses a factor modeling approach to combine multiple information sources (forecasters, surveys, TIPS).
- Incorporates concepts and terminology including:
- breakeven inflation series,
- inflation risk premium,
- no-arbitrage term structure model,
- yield curve,
- risk premia.
Policy relevance and implications
- Persistent low long-run inflation expectations imply concerns about the deanchoring of inflation from the FOMC’s target.
- The findings are relevant for monetary policy, inflation targeting, liquidity considerations, and asset and liability management.
Publication and metadata
- Author: Peter D. Williams
- Publication date: November 13, 2020
- Series: Working Paper No. 2020/240
- Issue: 240
- Volume: 2020
- Pages: 25
- DOI: https://doi.org/10.5089/9781513561158.001
- Stock No: WPIEA2020240
- ISBN: 9781513561158
- ISSN: 1018-5941
- Subjects and keywords include: Asset and liability management; Inflation; Inflation targeting; Liquidity; Monetary policy; National accounts; Oil prices; Prices; Return on investment; breakeven inflation series; CPI inflation; expectations survey; factor modeling; inflation risk premium; no-arbitrage term structure model; TIPS; yield curve.
IMF Working Papers — Inflation Expectations in the U.S.: Linking Markets, Households, and Businesses (Working Paper No. 2020/240, Peter D. Williams).
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