US rising inflation expectations pose risk for the Fed: study
Consumers’ estimates of inflation have been rising this year as households digest the Trump administration’s aggressive trade policies and brace for higher prices on imported good
[NEW YORK] The most recent spike in inflation expectations poses a bigger risk than past episodes to the US central bank’s ability to tame price pressures, according to a recent paper from the Federal Reserve Bank of Boston.
Households’ rising estimates for one-year ahead inflation are not being driven by expectations for higher prices for food and gas, as was the case during the pandemic. This increases the risk that inflation expectations will remain above the Fed’s 2 per cent goal.
A similar dynamic occurred in the late 1970s, when inflation surged and the Fed responded with an aggressive rate-hiking cycle, researchers Philippe Andrade and Michael Wicklein found when analysing data from the University of Michigan’s Surveys of Consumers.
Consumers’ estimates of inflation have been rising this year as households digest the Trump administration’s aggressive trade policies and brace for higher prices on imported goods. Those measures are also closely watched by Fed officials, as they seek to assess whether tariffs will result in a one-time price shock or a more persistent inflation surge.
“We find that the spikes in inflation expectations in the early 1970s and during the pandemic can be explained to a large degree by the steep increases in gas and food prices and the broad-based inflation that marked those periods. However, our estimates indicate that the late-1970s surge in expectations was not as closely related to price increases, and neither was the surge that began in spring 2025,” the authors wrote.
Those unexplained surges “could signal that the risk of inflation expectations becoming de-anchored, as they did in the late 1970s, has increased noticeably”, they add. The researchers said the risks appear “contained so far”.
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Fed officials have frequently said recent results from the University of Michigan showing elevated expectations represented an “outlier”, noting that other measures remained in line with their goal.
Yet consumers’ estimates for one-year ahead inflation also jumped to 3.4 per cent in September in a closely watched New York Fed survey.
Expectations for inflation three and five years ahead in September were a full percentage point above the Fed’s 2 per cent target. BLOOMBERG
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