From a news release issued by the Federal Reserve Bank of Cleveland after the BLS reported that the CPI was unchanged in April.
The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.38 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.
The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the “break-even” rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium.
The Cleveland Fed’s estimate of expected inflation was 1.47 percent, so expected inflation dropped by .09 basis point in April. It undoubtedly has continued falling in May. The lowest monthly estimate of expected inflation over a 10-year time horizon ever made by the Cleveland Fed was 1.34% in February of this year, so we may now already be stuck with the lowest inflation expectations ever. Is anyone at the FOMC paying attention?
Uneasy Money 
Does the Cleveland Fed’s estimate correspond better with core or overall levels of inflation in the economy?
Maybe the Fed recognizes that the inflationary effects of QE, while supporting stock prices, were pushing oil prices up to the brink of acceptable levels. Separately the Fed may feel to much political pressure in an election year to act at this point.
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@Woj
Couple of months ago I did a post on that (expectations, core & overall):
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It’s just so sad that the expected rate of inflation is declining, when it needs to rise.
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You can’t trust this numbers anyway. Those government statistics are flowed. I would assume that inflation has gone up, and not down. No way that the FED has stopped printing money. I can hardly believe any of it.
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@Marcus Nunes Thanks for the link. Definitely helped answer my question. It will be interesting to see how the Fed responds to the current decline in CF estimates. If the stock market falls a few more percent by the June meeting maybe they will choose to act…
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We have nothing else to do but hope!
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Woj, The Cleveland estimate is based on (but not identical to) the TIPS. TIPS are adjusted to the CPI, so what the Cleveland Fed is estimating is expectations of the future CPI. If the Fed thinks that they are pushing up the price of oil to unacceptably high levels, they are wrong, because monetary policy is only one of many factors affecting the price of oil.
Marcus, Thanks for the link.
Julian, I agree, and, more importantly, so does the stock market.
Tas, Call me naïve, but I trust (not absolutely, but pretty much) the statistics generated by US government agencies.
Woj, I hope so.
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Woj, the Cleveland Fed’s methodology comes up here:
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