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Out of Bounds: Do SPF Respondents Have Anchored Inflation Expectations?

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  • CAROLA BINDER
  • WESLEY JANSON
  • RANDAL VERBRUGGE

Abstract

Since the Federal Open Market Committee announced a 2% inflation target in 2012, the median long‐run inflation forecast of professional forecasters has been near target. We show, however, that most individual forecasters' long‐run inflation expectations fluctuate substantially, with sizeable departures from target. We propose a new “bounds anchoring” indicator based on deviations of individuals' long‐run forecasts from target. This indicator sheds new light on gradual changes in expectations since the 2012 announcement. We find that bounds anchoring gradually strengthened in the years following the target announcement, but that this trend has recently started to reverse.

Suggested Citation

  • Carola Binder & Wesley Janson & Randal Verbrugge, 2023. "Out of Bounds: Do SPF Respondents Have Anchored Inflation Expectations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(2-3), pages 559-576, March.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:2-3:p:559-576
    DOI: 10.1111/jmcb.12968
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    1. Verbrugge, Randal & Zaman, Saeed, 2023. "The hard road to a soft landing: Evidence from a (modestly) nonlinear structural model," Energy Economics, Elsevier, vol. 123(C).
    2. Beckmann, Joscha & Czudaj, Robert L., 2024. "Uncertainty Shocks and Inflation: The Role of Credibility and Expectation Anchoring," MPRA Paper 119971, University Library of Munich, Germany.
    3. Czudaj, Robert L., 2023. "Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors," MPRA Paper 119029, University Library of Munich, Germany.

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