Smoke, Mirrors, and Inflation Expectations

Some influential commentators believe that the Federal Reserve’s timing for the withdrawal of its record monetary stimulus could be determined by inflation expectations. (A popular measure of inflation expectations is the difference between the interest rate on the 10-year Treasury note and the interest rate on the 10-year Treasury inflation protected security [TIPS].) After settling at 1.5 percent in August last year, this measure of inflation expectations shot up in April to 2.6 percent.