Market indicators reflect similar concerns. One- and two-year breakeven inflation rates, calculated from Treasury yield differences, have risen 1.7% and 0.8% respectively since November.
The jump exceeds historical patterns. According to The Economist’s model, approximately 80% of variation in quarterly inflation expectations typically correlates with current inflation rates and fuel prices. If the traditional relationships held, expectations would be nearly a full percentage point lower.
Analysts attribute the disconnect primarily to President Donald Trump‘s tariff rhetoric. Consumer uncertainty about inflation has reached its highest level since 1980, with those opposed to tariffs expecting inflation near 5%.
“This is the riskiest period for inflation policy since the early Biden administration,” former Treasury Secretary Larry Summers told The Economist, referencing the period preceding four-decade inflation highs.
Signs suggest the expectations may become self-fulfilling. American wages grew at an annualized 5.9% in January, while over 20% of Michigan survey respondents—the highest proportion in three decades—report accelerating major purchases to beat anticipated price increases.
Federal Reserve officials have expressed concern. “When inflation expectations become unanchored, central banks often can restore price stability only at a great economic cost,” Dallas Fed President Lorie Logan recently warned. The uncertainty, she added, serves as “a reminder that expectations won’t stay anchored forever on their own.”
Longer-term inflation expectations show mixed signals. While the “five-year, five-year forward” measure favored by central bankers remains stable, five-year consumer expectations have climbed to 3.3%, exceeding recent peaks.
A partisan divide has emerged in longer-term outlooks, with Democrats now expecting 4.2% average price increases over the next five years. Research suggests similar Republican concerns during the pandemic contributed to subsequent inflation.
Some analysts believe Trump’s criticism of Federal Reserve Chairman Jerome Powell, including demands for interest rate cuts, has heightened Democrats’ inflation concerns.
Stone, what is your opinion of the Mar A Largo accord? It seems to be a clever new scheme to deal with debt!
Milking the Ukrainel/Russia hoax for all it’s worth. Grade school kids can perform better than this…keywords, “Deal, Don’t have the cards, Respect, he can come back when he’s ready for peace” Kinda neat how Trump nudge Zelensky at the 45:10 timemark in the video, like he was going to punch him. Another example that exposes this entire event as a hoax…Guess they want it to continue a little longer.
https://www.pbs.org/newshour/world/watch-zelenskyy-departs-white-house-after-trump-and-vance-chastise-him-in-tense-meeting