Survey-Based Estimates of the Term Structure of Expected U.S. Inflation

Surveys provide direct information on expectations, but only short histories are available at quarterly frequencies or for long-horizon expectations. Longer histories typically contain only semi-annual observations of short-horizon forecasts. The authors fill in the gaps by constructing a 50-year monthly history of expected inflation at all horizons from one month to 10 years that is consistent with inflation data and infrequent survey data. In the process, some models that fit inflation well are found to generate forecasts that bear little resemblance to survey data. Also, survey data on near-term expectations are found to contain considerable information about long-horizon views. The estimated long-horizon forecast series, a measure of the private sector’s perception of the inflation target of monetary policy, has shifted considerably over time and is the source of some of the persistence of inflation. When compared with estimates of the effective inflation goal of policy, these perceptions suggest that monetary policy has been less than fully credible historically.