Is it reliable?
So what is the opinion poll report actually? Is it information that can be used to make decisions about what policy debates are about today?
Morgan Stanley noted in a recent note that the University of Michigan survey of long-term inflation expectations tends mainly to match the five-year moving average of the consumer price index. Inflation in the Michigan survey. Even if you ignore the possibility that the survey may mislead policymakers, the more moderate explanation is that it is merely redundant as a factor in decisions about the federal funds rate.
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The latest University of Michigan survey numbers, released in preliminary data for May, were released just five days before the latest Federal Reserve decision, and showed that respondents expected a 3.3% rate increase in five to 10 years, the most since 2008. Central bankers can live with With higher inflation expectations in the near term, but increasing long-term estimates in theory suggest that the public is losing confidence. Powell said, at a press conference after the decision, that it is very important that inflation expectations remain stable:
Even if we saw two indicators (of inflation expectations) that would make us question because we take that very seriously. We don’t take it for granted but take it very seriously. So the initial reading of the University of Michigan survey might be revisited, though it was interesting and we took it into account.
The Federal Reserve is walking a very fine rope as it tries to tackle the worst inflation in 40 years and rescue the economic expansion. If the council starts relying on metrics that are inherently inaccurate, it may go exaggeratedly in one direction or the other, and what is worse is that it ends up scattered between two directions and fails to reach either destination.
This time the board was right to send a bold message about its commitment to fighting inflation. But the degree of reliance on the Michigan survey in making decisions means that the Fed made the right decision for wrong reasons. As the council heads to the next stage of its battle with inflation, it must get rid of the shortcomings in formulating its policies, and this is one of them.