Don’t Panic Over Falling Inflation Expectations

Alarms are ringing over how much expected inflation has fallen in recent months. Bond markets are betting that five to 10 years from now, inflation will be roughly half the Fed’s 2% target. The University of Michigan reports on household expectations today; its last survey found long-term expectations hit an all-time low earlier this month. This has unsettled some Federal Reserve policy makers and many outside analysts, because low expectations can be self-fulfilling. It’s fueled calls for the Fed to stop raising rates, or even cut them. But the drop may be misleading: It is heavily driven by…