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Long-Term Inflation Expectations From Surveys A consumer survey by the University of Michigan asked respondents about short- and long-term inflation expectations, capturing forecasts from ordinary households. The 5- to 10-year ahead expectations approached double digits when the survey began around 1980, gradually declining to the 3% range over the next 15 years. Since 2000, it has been stable at an average of 2.9%. A move to the 3.2% area lasting for six months or longer would suggest concern, the report said. The Fed’s Unemployment Forecast The report suggested that investors monitor the relationship between the actual unemployment rate, the Fed’s neutral-rate estimate and other indicators of labor market slack – including measures of wage inflation – for signs that pressure is building.Hood said that the Fed’s unemployment rate outlook over the long-term is much lower than today's rate. “So that’s a sign that the Fed is comfortable,” he continued, adding that this indicates there is slack in the economy.Conversely, if the Fed bumps up its unemployment estimate, that is a sign that there is less slack in the economy, increasing the medium-term inflation risk. In general, Hood suggested that an effective inflation-protection strategy is increasing allocations to “real” assets (e.g. equities). Equities are able to serve at least as a partial inflation hedge over the medium-term. Equities, however, are lower at periods of high inflation. “You should do fine over the long-term [with equities], but you can suffer during the inflation spike,” he said. The paper is available here.
Long-Term Inflation Expectations From Surveys
A consumer survey by the University of Michigan asked respondents about short- and long-term inflation expectations, capturing forecasts from ordinary households. The 5- to 10-year ahead expectations approached double digits when the survey began around 1980, gradually declining to the 3% range over the next 15 years.
Since 2000, it has been stable at an average of 2.9%. A move to the 3.2% area lasting for six months or longer would suggest concern, the report said.
The Fed’s Unemployment Forecast
The report suggested that investors monitor the relationship between the actual unemployment rate, the Fed’s neutral-rate estimate and other indicators of labor market slack – including measures of wage inflation – for signs that pressure is building.
Hood said that the Fed’s unemployment rate outlook over the long-term is much lower than today's rate. “So that’s a sign that the Fed is comfortable,” he continued, adding that this indicates there is slack in the economy.
Conversely, if the Fed bumps up its unemployment estimate, that is a sign that there is less slack in the economy, increasing the medium-term inflation risk.
In general, Hood suggested that an effective inflation-protection strategy is increasing allocations to “real” assets (e.g. equities). Equities are able to serve at least as a partial inflation hedge over the medium-term. Equities, however, are lower at periods of high inflation. “You should do fine over the long-term [with equities], but you can suffer during the inflation spike,” he said.
The paper is available here.
Corie Russelleditors@plansponsor.com