Fed’s Potter Says Better Measure of Inflation Expectations Is Necessary

Federal Reserve Bank of New York economist Simon Potter said a better understanding of how the public forms its expectations for inflation would strengthen monetary policy.

“Despite the importance of inflation expectations for forecasting future inflation and economic activity and as a key link in the monetary transmission mechanism, surprisingly little is known to directly answer these questions,” Potter, executive vice president and director of economic research at the New York Fed, said in the text of remarks in New York today.

The New York Fed has been conducting research in an effort to improve measures of inflation expectations, he said.

“A better understanding of the factors affecting individual inflation expectations will also help evaluate and predict the impact and effectiveness of central bank policy decisions and communication strategy,” Potter said.

“The ability to do so is especially important at times such as the current one, in which central banks have been expanding their toolkits and conducting traditional as well as nontraditional monetary policy,” he said.

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To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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