Inflation Expectations of American Consumers

Bloomberg has a story positing that Bernanke may have to veer sharply toward a rate-hiking policy if he wants to avoid the stagflationary environment of the 70′s and the ensuing harsh remedy administered by Paul Volcker. There is nothing new in the article if you’ve been paying attention but this line caught my attention:

“As policy makers meet this week to decide on interest rates, Bernanke has one big thing going for him that Volcker, 80, didn’t: Polls show Americans, for the most part, are still convinced the Fed will do what it takes to keep inflation down….

Consumers expect inflation to average 3.2 percent during the next five to 10 years, according to a Reuters/University of Michigan survey this month. That compares with the 9.7 percent long-run inflation rate they expected in February 1980, seven months after Volcker took office.”

For me, this section does not pass the smell test. I don’t know anyone who is not concerned about prices across almost all areas — gas, utilities, healthcare, tuition and now food. Keep in mind, I live in Sacramento, CA so there aren’t many hedge-fund managers or banking execs out here.

Find the story here:

Bernanke May Have to Follow Volcker to Avoid Being Tagged Burns 

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