Meanwhile, from the world of “notable but boring” news, the New York Fed’s monthly survey of consumer expectations showed the outlook for inflation three years ahead falling to 2.4% last month – that’s a record low.
The most subdued outlook for medium-term inflation expectations in data going back to 2013 comes courtesy of respondents with lower levels of income and education, the New York Fed said Tuesday.
“Median home price change expectations declined from 2.9 percent in August to a new series low of 2.8 percent [while] expectations about household income and spending growth remained stable”, the report also notes.
Who cares?, you might ask.
Well, nobody, really. Or at least not immediately, right now, today. But in the context of the broader discussion around survey-based measures of inflation expectations continuing to fall, this is yet another piece of incremental evidence to suggest that the Fed is losing control of the narrative.
Because inflation expectations are self-feeding (on a textbook read, anyway), this is cause for considerable consternation at a time when monetary policy is operating at the limits (i.e., with rates barely off the ZLB or still mired in NIRP, and balance sheets bloated and set to become more so).
This comes less than a week after the latest University of Michigan consumer sentiment report showed longer-run inflation expectations falling to an all-time low of 2.2%.
All of the above ostensibly makes the case for more cuts from the Fed.
The September FOMC minutes show the doves “stressed the need for a policy stance that was sufficiently accommodative to make it unlikely that the United States would experience a protracted period of the kind seen abroad in which the economy became mired in a combination of undesirably low inflation, weak economic activity, and near-zero policy rates”.
In other words, the doves are worried about “Japanification”.
But, as ever, the irony is that when you look at locales where ultra-accommodative monetary policy has been tried, there appears to be an unnerving correlation between how far down the rabbit hole central banks go, and how endemic disinflation and sluggish growth becomes.
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