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As I understand the FED considers the employment and inflation expectation when defining the monetary policy. I wonder what is the quantitative indicator or traded instrument FED uses to derive this expectation of inflation? I don't believe the Break Even Inflation is a good explanation, because this inflation expectation is calculated by subtracting the return of TIPs (inflation-adjusted return) from Nominal Return of T-Bond (return with inflation expectation) of the same maturity. As the Nominal Return of T-Bond is already the result of FED's monetary policy, so the FED should have some other approach to quantify inflation expectation. Thank you for your attention!

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"How does FED qua[n]tify inflation expectation?"

NY Fed survey, UoM survey, Philly Fed SPF, proprietary adjustments to breaks for various risk premia, etc. But overall, this question should probably be in economics stack exchange.

NY Fed survey

UoM survey

Philly Fed SPF

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  • $\begingroup$ Thansks user42108 $\endgroup$
    – Lopo
    Sep 21, 2021 at 12:00
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The Federal Reserve considers a variety of indicators when making monetary policy decisions, including employment and inflation expectations. While the Break Even Inflation rate can provide some insight into inflation expectations, it is not the only factor that the Fed takes into account. Other indicators that the Fed may consider include measures of inflation expectations from surveys of professional forecasters, as well as market-based measures of inflation compensation.

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