The Cleveland Fed has updated it expected inflation series. Here is the lead paragraph from their July 16 update:
The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.69 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.
Recall, that at the end of June the same paragraph read as follows:
The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.84 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.
As I have said before, the way I interpret these numbers is that aggregate demand is expected to weaken in the future.* Since the Fed can largely shape aggregate demand (i.e. total current dollar spending) if it wanted to do so this amounts to an expected tightening of monetary policy going forward.
*One does have to be careful, though, since positive aggregate supply shocks could be pushing down inflation too. Given the current economic conditions it seems to me the negative aggregate demand shocks are the driving force.
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