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Allison Schrager: Uncertainty and Inflation

Policy markers take comfort that longer term inflation expectations still hover around 2%. That seems to suggest that eventually the pre-pandemic low inflation/low interest rate world will soon return and the Fed still has the credibility it needs to conduct monetary policy. But in finance it is not just the level of inflation or interest rates that matter. The risk around financial and economic variables often matter even more. And data from the NY Fed survey shows that uncertainty around inflation shot up in the last few years and has not gone down. More uncertainty means higher interest rates and more volatile inflation expectations, which can mean less price stability going forward. Three years ago about half of Americans had little concept of inflation risk, they may never get that innocence back.

Source: NYFED

Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.

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Posted: April 11, 2023 Tuesday 10:59 AM