Inflation Expectations Continue to Fall in the US
Our chart shows declining US inflation expectations, as measured by the USD Inflation Swap Zero Coupon 2Y. This is in line with the falls in the Personal Consumption Expenditure (PCE) Index, the Fed’s preferred measure of inflation. The PCE is preferred because it covers a broader range of expenditures and is weighted by data acquired through business surveys, which tend to be more reliable than the consumer surveys used by the Consumer Prices Index (CPI).
Expectations have been falling for a number of reasons, including the negative impact that the US / China trade issues will have on both the US and global economies. The further these expectations fall, the more the Fed will be expected to respond aggressively. Will they deliver?
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