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blazespinnaker
09-12-06, 05:04 AM
I think it's becoming more clear to me that the fed doesn't care about inflation... rather, they care about inflation expectation.

Though there was a massive run up in asset prices, the fed doesn't really care so much about that as they care about expectations for inflation going forward.

Are expectations for inflation high right now? Certainly long term bonds aren't really pricing in high inflation.

I don't think we'll see any attempt to rollback or even revert to the mean for asset prices by the fed as long as the trend doesn't continue.

Finster
09-12-06, 09:13 PM
I think it's becoming more clear to me that the fed doesn't care about inflation... rather, they care about inflation expectation.

Though there was a massive run up in asset prices, the fed doesn't really care so much about that as they care about expectations for inflation going forward.

Are expectations for inflation high right now? Certainly long term bonds aren't really pricing in high inflation.

I don't think we'll see any attempt to rollback or even revert to the mean for asset prices by the fed as long as the trend doesn't continue.

The "expectation" is a code word for "perception". Fed wants to have the actual inflation, but not the perception. The more inflation perception you have, the higher interest rates will be, and that makes it harder for the Fed to inflate.