Does the Federal Reserve have a communication problem or maybe the American public has a listening problem? Either way, inflationary expectations differ between the Federal Reserve and U.S. consumers. How this diversion plays out may affect the performance of the economy.
The mandate of the Fed is to keep prices (inflation) stable and to seek maximum sustainable employment. Fed Chairman Jerome Powell has insisted that inflation is ‘elevated’, reflecting ‘transitory’ factors, which he has described as the ‘perfect storm’ of strong demand outstripping weak supply and supply chain bottlenecks. Meantime, consumers are watching prices rise on just about every item needed for everyday life- no wonder the Survey of Consumer Expectations, published monthly by the Federal Reserve Bank of New York, rose to 5.3% in the latest survey. This represents the eleventh consecutive monthly increase and the highest level since the inception of the survey in 2013.
There is a growing narrative that inflation is real, whether transitory or not. My friend Fred Crossman goes into this topic on the latest post on his Collar Stocks blog. Inflation is felt firsthand in our daily lives, which drives things that are measured, like consumer expectations surveys.
This report from the Chicago Booth Review delves into the disparity between the goals communicated by the Fed and the knowledge or understanding of those goals by the American public. A particularly striking finding from the report- households reduced forecasts on inflation on surveys when given simple statistics on inflation, including the Fed’s inflation target and forecast. The same consumers given a newspaper article summarizing the data adjusted inflation forecasts by half as much. Part of controlling something like inflation is through good communication- an overall quality not carried out very well in this country of late. Let me know what you think and enjoy the article.
~ Brian Kasal- The Leadership Matrix
Click here- Who is right about inflation?
An added bonus- a video from the Cleveland Fed, What Is Inflation?
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