Deciding the Next Step for the Federal Reserve: Rising U.S. Household Inflation Expectations vs. Falling Financial Market Inflation Expectations, Who is Wrong?

U.S. inflation expectations have diverged. A report from JPMorgan Chase points out that short-term inflation expectations among households and businesses have risen significantly, while inflation expectations in the financial markets have remained relatively stable or declined. This discrepancy poses a policy dilemma for the Federal Reserve, which may need to adopt a more cautious stance. The report shows that long-term inflation expectations from household surveys have reached the highest point in 46 years, and short-term expectations have also hit a 40-year high. In contrast, inflation expectation indicators in the financial markets, such as inflation swaps and TIPS, have declined, indicating that market confidence in long-term inflation remains strong