Fed Gets Disastrous Sentiment Report As Inflation Expectations Jump
In a decidedly unwelcome development reminiscent of a fateful Friday in June of 2022, University of Michigan inflation expectations at the five-year point registered 3.2% in the preliminary read for May.
That was a marked uptick from 3% in April and matched the highest reading since 2008.
Context is important. Recall that it was a 3.3% preliminary read on longer-term University of Michigan inflation expectations, accompanied by a record-low headline sentiment print, which tipped the scales in
U. Mich inflation expectations tend to move directionally with CPI YOY. When CPI is very high [low], expectations tend to be higher [lower] than CPI. Basically, people extrapolate the present to the future.
https://fred.stlouisfed.org/graph/fredgraph.png?g=13sG6
If inflation gets “stuck” around 5.0%, expectations are likely to go higher from 3.2%.
The rate cuts are right around the corner crowd continue to be wrong in their prognosis. But the market appears to still be listening anyway.