This New York Fed Inflation Expectations Indicator It fell sharply from 6.8% in June to 6.2% in July. That’s a much bigger drop than the Michigan series (0.1ppt).
figure 1: CPI YoY Inflation (black), Median Expectations from Professional Forecasters Survey (Blue+), Median Expectations from Michigan Consumer Survey (red), Median NY Fed Consumer Expectations Survey (light green), Cleveland Forecast Fed (pink), average from Coibion-Gorodnichenko Corporate Expectations Survey [light blue squares]. Michigan’s July observations are preliminary. Source: BLS, University of Michigan, via FRED and iPhiladelphia Fed Survey of Professional Forecasters, Fed, Cleveland Fed and Kobe and Gorodnichenko.
Not only did the median one-year forecast fall, but the implied 12-month inflation rate 2-3 years later also fell.
figure 2: The one-year median of the NY Fed Consumer Expectations Survey (blue) as of the date indicated, implying 12-month growth over the next 2-3 years (tan). resource: Fedand the authors’ calculations.
Note that long-term expected rates in 2-3 years are back (and below) pre-pandemic levels. This is in line with the five-year inflation breakeven (unadjusted and adjusted) reported yesterday. postal.
image 3: The five-year inflation breakeven is calculated as the five-year Treasury yield minus the five-year TIPS yield (blue, left scale), and the five-year breakeven is adjusted for the inflation risk premium and the liquidity premium per DKW (red, left scale), both In units. The light blue dashed line represents 2.5% CPI inflation, in line with 2% PCE inflation. Recession dates as defined by NBER are shaded in gray. Source: FRB via FRED, Treasury, NBER, KWW Following D’amico, Kim and Wei (DKW) access 8/4, and author’s calculations.
