Dear FOMC members:
As you prepare for an important FOMC meeting, I would like to direct your attention to several graphs and ask that you consider their implications. First up is a figure of monthly expected inflation across different horizons that comes from the Cleveland Fed. The data is based, in part, on the Treasury market. This figure shows expected inflation in September 2009 and in September 2010. Note that the one-year inflation forecast over the last year went from 2.38% to 0.90% while the ten-year forecast moved from 2.03% to 1.54%. As I have shown before, a dramatic downward trend underlies these differences:
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