Has the Fed misplaced credibility, as some individuals have argued (e.g., EJ Antoni)?
One strategy to assess credibility is to see whether or not individuals’s expectations of inflation on the medium time period (say 3 years) comes near the implicit goal. With a PCE y/y inflation goal of two%, this implies a 2.45% CPI goal. Utilizing this, and the NY Fed’s survey of customers (not economists), we get the next image:
Determine 1: Bordo-Siklos (2015) credibility measure utilizing 2.45% goal (blue), squared deviation of expectation from 2.45% goal (inexperienced), seventy fifth percentile deviation from 2.45% goal (crimson). NBER outlined peak-to-trough recession dates shaded grey. Supply: NY Fed, NBER, and creator’s calculations.
My reply: No. At a minimal, Fed credibility with respect to medium time period inflation is as excessive as — if not higher than — it was on the finish of the Trump administration.
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