Freshest from the worst inflation shock in decades, the Americans have been again at higher prices.
According to metrics, the expectations of future inflation have been observed closely by officials from the Federal Reserve. So far, the data, including a consumer survey by the University of Michigan and market -based measures of the expectations of investors, does not suggest that the price pressure is short to get out of control.
However, the latest jump was significant enough to ensure attention and even more uncertainty about an economic outlook on the constantly developing approach for trade, immigration, taxation and other political areas. On Tuesday, a survey by the conference committee showed that the confidence of the consumer in February and increased inflation expectations when the Americans were annoyed with the increasing price of eggs and the potential effects of tariffs.
If these worries remain, it could be a political problem for Mr. Trump, whose promise to control prices was a central part of his message during the past year. This would also contribute the challenge for the political decision -makers of the FED, who are already concerned that the progress against inflation goes through blocking.
“This is the kind of things that can use a political decision -maker,” said Jonathan Pingle, who used to work at the Fed and is now a chief economist at UBS, about the comprehensive trend in inflation expectations. “We do not want the inflation expectations to increase so much that the task of the Fed is more difficult to regain inflation to 2 percent.”
Most economists see the inflation expectations in chess as crucial for the control of inflation itself. This is because beliefs can become a self -fulfilling prophecy: If the employees expect living costs, they will request increases to compensate. If companies expect the costs of materials and work increase, they will increase their own prices in expectation. This can make it much more difficult for the Fed to bring inflation into the heel.
This was done in the 1960s and 1970s: Consumers and companies prompted years of high inflation that prices rose quickly. Only by increasing the interest rates to a punishment level and a severe recession was the Fed, which was able to completely control inflation.
When prices rose quickly in 2021 and 2022, many forecasts feared a repetition of this scenario. Instead, the inflation expectations remained relatively handling – only slightly increased and quickly fell as soon as inflation began to secure – and the Fed was able to reduce inflation without causing a great increase in unemployment.
“The reason why this scenario did not take place was that the expected inflation after most measures, although inflation increased quite a bit, only increased a little,” said Laurence Ball, economist at John's Hopkins University. “That is the big difference between the 1970s and the 2020s.”
However, there are now indications that the Americans expect higher inflation in the coming years. The persistent price pressure, which is partly due to an increase in the costs of eggs and energy supply in connection with concerns with regard to the effects of tariffs, are among the factors that consumers' expectations have placed at the highest level of consumers in the next 12 months in more than one year, according to the long -term survey of the University of Michigan.
For the economists, which tend to be the expectations of consumers to inflation for longer running and over time, more than worrying became more than worrying. The increase over the age and the level of income indicates, which indicates that the fears in inflation are widespread.
The expectations of Michigan's survey have already increased to fall back in the following months. And the latest results have shown that huge partisan splitting has risen sharply since the elections among the Democrats, but has fallen among the Republicans – some economists have caused the results to be reduced.
However, the inflation expectations have also increased among the political independent – a significant development, since its assessment of the economy is usually more stable, said Joanne HSU, who heads Michigan's survey.
However, economists said that the longer inflation was increased, the greater the chances that consumers and companies would re -establish their expectations. What the central banks fear is when these expectations become “indecent” or move enough to have little trust that inflation will return to the goal of 2 percent over time. This risk now appears more clearly than a few months ago. The progress in inflation has stalled in recent months, and President Trump has followed politics, of which many economists believe that they are likely to prices, such as: B. tariffs and limitation of immigration.
“The data show that the inflation expectations seem to be well anchored, but if I were at the Fed, I would not accept it or take it for granted,” said Richard Clarida, a former Vice Chair of the FED, who is now at Pimco, an investment company.
Central bank officials have so far downplayed concerns about inflation expectations. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said that the latest survey by the University of Michigan was “not a large number”, but has so far only reflected one monthly data.
“You need at least two or three months to count,” said Mr. Goolsbee, who gives votes on political decisions this year, on Sunday.
Alberto Musalem, President of the St. Louis Fed and an electoral member, was also emphatic that the inflation expectations were under control with reporters last week. Mr. Musalem described Michigan's data as “a metric under a variety of metrics that have shown a little increase”.
Despite this trust, the FED has initially put additional interest reductions on ice. Officials not only want more evidence that inflation is on the withdrawal, but also said that a solid economy offers them time to wait and see how Mr. Trump's plan will affect consumer prices, the labor market and growth.
The protocol of the latest political meetings in January showed that the political decision -makers expected some effects on Mr. Trump's consumer prices. But how the central bank should react remains a big debate point.
Some, like the Fed Governor Christopher J. Waller, have argued that the central bank can “see through” the economic effects of guidelines such as tariffs. However, this attitude depends on a number of factors that above all that such taxes only lead to a one -time increase and that expectations in companies and households are still in chess.
According to Charles Evans, who retired as President of Chicago Feed in 2023, this could be a risky strategy, especially in view of the inflation penalty, which followed the economic shock from the Covid era.
“This is the same transient story that the Fed and everyone said in 2021,” he said. “You would think that political decision -makers would hesitate to rely on it.”
Mr. Evans already said that it made him “a little nervous”, especially in view of his concerns that companies are more inclined than in the past to pass on higher prices to their customers. For these reasons, he expects the FED to remain “careful” for further interest reductions this year.
John Roberts, who recently worked as a top employee in the Fed Department and Statistics, before he came to Evercore ISI, added that the central bank could possibly be inclined to completely forego reductions this year if the inflation expectations did not improve to the current level. At that time he already sees “a bit” here.
After the publication of the latest data from the University of Michigan on Friday, the economists at LHMEYER, a research company, pushed their time back from June to September.
There is also another risk: If Mr. Trump undermines the independence of the Fed or threatens, this could undermine confidence in the ability of the central bank to control inflation and increase inflation expectations.
Last week, Mr. Trump tried to arouse his reach about the Fed as part of a broader effort to awaken a greater control over congression -described independent agencies. The executive order aimed at the supervision and regulation of Wall Street of the central bank and made its decisions about monetary policy. But the expansive nature of the order enthusiastic about how much more Mr. Trump's interference with the independence of the Fed could ultimately go.
“This is the most dangerous scenario,” said Mr. Ball and added that even the threat of political interference could make the job of the Fed difficult. “The ability of the Fed to control expectations could not only be hindered by taking over the Trump government, but also by fear that could happen.”