A note from the desk of President Jeffrey M. Lacker, Federal Reserve Bank of Richmond:

“The median inflation expectation from the University of Michigan’s monthly survey of consumer sentiment is 2.9 percent, and other surveys yield similarly results. These readings on inflation expectations have been persistently high, and that’s troubling, since they raise the possibility that people think the FOMC will be unable or unwilling to conduct monetary policy in a way that keeps inflation from rising significantly during this recovery.”

That is only true to the extent that people do not wish for some degree of inflation. Modest inflation would tend to increase home prices and wages. It would also offset the chance of deflation which undermines job growth and slows movement of liquidity in and out of investments which benefit from the rapid flow of capital.

Douglas A. McIntyre