Image Source: PexelsHas the Fed lost credibility, as some people have argued (e.g., EJ Antoni)?One way to assess credibility is to see whether people’s expectations of inflation at the medium term (say 3 years) comes close to the implicit target. With a PCE y/y inflation target of 2%, this means a 2.45% CPI target. Using this, and the NY Fed’s survey of consumers (not economists), we get the following picture:
Figure 1: Bordo-Siklos (2015) credibility measure using 2.45% target (blue), squared deviation of expectation from 2.45% target (green), 75th percentile deviation from 2.45% target (red). NBER defined peak-to-trough recession dates shaded gray. Source: NY Fed, NBER, and author’s calculations.My answer: No. At a minimum, Fed credibility with respect to medium term inflation is as high as — if not greater than — it was at the end of the Trump administration.More By This Author:WSJ October Survey: GDP On The RiseWhy So Glum? Sentiment By Partisan Grouping Contextualizing The Inflationary Impact Of The 10%/60% Trump Tariff Plan
