Fed’s Williams: Longer-run inflation expectations in line with FOMC target

Longer-run inflation expectations during the past year and a half have remained “remarkably stable” at levels broadly consistent with the Federal Open Market Committee’s 2% target, Federal Reserve Bank of New York President John Williams said today. Speaking at an economic conference in Zurich, Williams said that maintaining well-anchored inflation expectations is a “bedrock principle” of central banking, and the news was “mostly good” on that front with expectations generally falling in the 2% range. “Inflation uncertainty has increased, but this does not appear to be due to unmoored longer-run expectations,” he said.

Still, there is a catch, according to Williams. There has been a “striking increase” over the past year in the share of people who expect deflation three and five years in the future. In September’s New York Fed Survey of Consumer Expectations, about a quarter of respondents had deflation expectations five years in the future, which was nearly as large as the share expecting inflation above 4% at the five-year horizon. “The one surprising wrinkle worth further study is the increasing divergence in views about future inflation, including the high share of those expecting deflation, and what this portends for the future,” he said.