One point that doesn’t quite come through in either of the stories is just how focused on low inflation the Fed has become. Hilsenrath notes that the prices of so-called TIPS bonds indicate investors expect inflation of 2.8 percent in five years, and in April consumer prices were up 3.1 percent from a year earlier. Both are above the Fed’s unofficial but widely acknowledged goal of 2 percent inflation.
But according to another measure of inflation expectations, produced by the Cleveland branch of the Fed itself, the “latest estimate of 10-year expected inflation is 1.86 percent”—that is, below the goal.
And from the same source, here is a graph showing ten-year inflation expectations (the blue line) going back to 1982. There’s a long-run trend, and it’s not upward:
There are good questions, which Fed officials have noted, about how effective further easing would be. At the same time, there are good questions about why, with a pressing jobs crisis and signs of problematic inflation scarce at best, the central bank isn’t trying everything it can to boost the economy. As the political press devotes more and more of its time to the budget battles on the Hill and the campaign to come, we need some reporters who will ask them.