News Flash: Cleveland Fed Reports that Inflation Expectations Fell in April

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?

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10 Responses to “News Flash: Cleveland Fed Reports that Inflation Expectations Fell in April”


  1. 1 Woj May 15, 2012 at 10:12 am

    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.

  2. 3 Julian Janssen May 15, 2012 at 11:41 pm

    It’s just so sad that the expected rate of inflation is declining, when it needs to rise.

  3. 4 Tas von Gleichen May 16, 2012 at 5:15 am

    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.

  4. 5 Woj May 16, 2012 at 5:36 am

    @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…

  5. 6 Marcus Nunes May 16, 2012 at 3:18 pm

    We have nothing else to do but hope!

  6. 7 David Glasner May 17, 2012 at 6:35 pm

    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.


  1. 1 Economist's View: Links for 2012-05-16 Trackback on May 16, 2012 at 12:07 am
  2. 2 Market expectations of inflation over the next ten years may be at an all time low « Economics Info Trackback on May 17, 2012 at 12:00 pm

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About Me

David Glasner
Washington, DC

I am an economist at the Federal Trade Commission. Nothing that you read on this blog necessarily reflects the views of the FTC or the individual commissioners. Although I work at the FTC as an antitrust economist, most of my research and writing has been on monetary economics and policy and the history of monetary theory. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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