<p>In Washington, DC, a troubling situation for the Federal Reserve is on the horizon. The central bank is closely monitoring a series of risks that could complicate its efforts to rein in inflation, including continued hot consumer demand pushing up prices, as well as potential effects on oil prices from geopolitical tensions in the Middle East. The Fed is also particularly focused on whether Americans still believe that inflation will eventually return to normal levels. This belief, however, appears to be fading. As per the latest consumer survey from the University of Michigan, Americans’ long-term inflation expectations have risen to 3.2%, the highest level since 2011. If Americans lose faith in the Fed’s ability to bring inflation back to its 2% target, the central bank may tighten monetary policy even further by raising interest rates or keeping them elevated for an extended period.</p><p>Looking at a range of surveys, not just the University of Michigan’s findings, the Fed is concerned about the erosion of long-term inflation expectations among the public. Fed Chair Jerome Powell regularly discusses Americans’ perceptions on inflation at each news conference following policy-setting meetings, and the Fed’s latest economic projections indicate that it does not expect inflation to reach 2% until 2026. The central bank’s current efforts to manage inflation could be complicated by rising long-term inflation expectations. These expectations have the potential to influence how the Fed acts, as rising expectations could prompt the Fed to take action to stabilize prices.</p><p>Although the Fed is concerned about inflation expectations, it remains unclear whether these expectations will continue to deteriorate. According to a New York Fed analysis, the public’s confidence that the Fed can handle inflation effectively has improved over the past year, which has helped to prevent inflation expectations from spiraling out of control. The Fed’s ability to demonstrate progress in its ongoing fight against inflation will be critical in maintaining public confidence that it can tame inflation over time. This is important to the Fed because sticking to its 2% inflation target is as much about avoiding long-term inflation expectations of 4% as it is about reaching a specific target rate. The direction of travel is more important than where they arrive before the journey is over. The Fed just wants people to not expect that inflation will be permanently high. The risk of a shock to inflation is something that the Fed must continue to be vigilant about.</p><p>On a related note, the IRS recently released inflation-adjusted income tax brackets and standard deduction amounts that will apply to tax year 2024. These adjustments affect individuals’ federal standard deductions, and because most filers claim standard deductions, these adjustments will be relevant to a large number of taxpayers.”</p> <p>Monday, Earnings from Tyson Foods. Fed Governor Lisa Cook delivers remarks. Tuesday, Earnings from Home Depot. The US Labor Department releases its Consumer Price Index for October, and Fed officials Phillip Jefferson, Michael Barr, Loretta Mester, and Austan Goolsbee deliver remarks. Wednesday, Earnings from Target. The UK’s Office for National Statistics releases October inflation data, and the US Labor Department releases its Producer Price Index for October. Thursday, Earnings from Walmart, Macy’s and Gap. The US Labor Department reports the number of initial jobless claims in the week ended November 11, along with export and import prices in October. The Federal Reserve releases October figures on industrial production. Friday, The US Commerce Department releases October data on housing starts and building permits. San Francisco Fed President Mary Daly delivers remarks.</p>
Is The Fed Concerned About Americans Adapting to High Inflation? Signs Suggest It’s Already Taking Place
