What are Inflation Expectations?

Another terrific chart from the fine econ wonks at the St Louis Fed:
click for larger chart


Note the original is Black & White, and I added the inflation channel in Red.


Is All That Talk Just Noise?
St Louis Fed
August 2006

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What's been said:

Discussions found on the web:
  1. KirkH commented on Aug 7

    Anybody have a take on this analysis of the effect of 0% reserve ratios on inflation?

    Some background from a Fed article

    “These retail sweep programs use computerized systems to transfer consumer and some small business transaction deposits, which are subject to reserve requirements, into savings accounts, which are not. Largely because of such programs, required reserve balances have dropped from about $28 billion in late 1993 to around $7 billion or $8 billion today.”

  2. Mike commented on Aug 7

    You think that sudden magical flat line in 06, 07 predicted by the Philly fed is politically motivated? Nah, how can you say such a thing!

  3. Craig H commented on Aug 7


    Banks are kiting deposits into savings accounts to reduce their overnight reserve requirements. It gives them more money to loan out on bad mortgages.

  4. whipsaw commented on Aug 7

    erm, wait a minute. I haven’t really paid much attention to reserve requirements in 10-20 years, but am I correct in understanding that the current requirement for time deposits is ZERO? And some demand deposits are being treated as time deposits for reserve purposes? If so, that’s just pure insanity. When did that happen… oh let me guess.

    Perfect Storm may be coming in that case once the Piggies (banks) have to face up to their credit policies of the past several years. If you are old enough to know what the RTC was, you will appreciate my amazement that we seem to be on the cusp of a similar debacle. Then again, I never thought that I’d see another Vietnam in my lifetime, let alone one created by people who are only a bit older than myself.

  5. Sammy20 commented on Aug 7

    I thought the credit report (link below) would be a main topic of conversation, yet it is barely being reported. The fact that the “guru’s” missed this number so horribly (6.6 billion under actual…pathetic actually) and the fact that I think this is the primary reason we have not had the consumer fallout that some of us have been expecting….mind you this only postpones the problem and in fact worsens it significantly later on.


  6. KirkH commented on Aug 7

    Sammy, I don’t think the explosion of credit card debt is surprising. People can no longer use home equity lines of credit to pay the mortgage so they’re using credit cards for everything but the mortgage payment.

  7. Sammy20 commented on Aug 7

    I don’t disagree with that thinking, but the number was almost 3 times estimates!…..and I think that data lends some very credible evidence to the “not so soft landing” argument.

  8. whipsaw commented on Aug 8

    heads up!

    Just looking at how the more volatile currencies that are paired with USD are moving this evening, it appears that there will be a Pause! tomorrow. Of course that could all change with one missile strike or if Paris Hilton decides that she’s not going to remain celibate for a year after all, but you can filter the data however you like.

  9. philip commented on Aug 8

    Strange that debt sky rocketed but retail sales declined. What were the debtors buying? Maybe since cash is scarce everyone financed their summer vacations with debt?

  10. Anonymoose commented on Aug 8

    Philip said: “Strange that debt skyrocketed but retail sales declined. What were the debtors buying?”

    Mortgage payments.

  11. jacksandgo commented on Aug 8

    One personal item about the consumer credit expansion: I’ve been bombarded with credit card offers the past couple months…something like a 100% increase in offers by my guesstimate from the prior months.

    They’re coming in with 0% balance transfer and purchase teasers for 6-12 months, no balance transfer fees, no annual fees, averaging 12-14% interest rates. Very interesting timing on this sudden surge in offers. Definitely seems they’re trawling for increased business during a looming consumer credit crisis. And since I rent, it doesn’t look like they’re only targeting the mortgage crowd.

  12. Leisa commented on Aug 8

    I saw the comment on another website about consumer debt. I was also reminded that on some of those offers a rate adjustment triggers if (1) you miss one or two minimum payments in a 12 month period; or (2) they don’t like the way your credit report looks–you could be on time with them, but screw up on another card and you go from 0 – 24% in nothing flat. I can see nothing but consumer debt misery. I guess a tax break could be offered that would return credit card interest debt to a tax deduction. Remember that?

  13. satyen mehta commented on Aug 8

    Would you please give the link to the actual Doc at the St Louis Fed? I looked on their web site and could not find it.
    Excellent chart – makes clear that the Fed is constrained not by questions whether growth will slow but really if their is inflation. Inflation bulls point to Globalisation, Impact of China and India adding to labor supply/other factors of production, TIPs spread and the implied real rates – nominal bonds less Phildelphia Fed while Bears point to commodities, oil and Michigan survey, anecdotal evidence.

  14. jkw commented on Aug 8

    Credit card interest is tax-deductible in many cases if you are a student. It says right in the IRS publication that any debt used for qualifying educational expenses while you are a student is student loan debt, and specifically lists credit cards as an example. Qualifying educational expenses include housing, food, travel between your school and your parent’s home, car expenses, books relevant to your classes and a number of other things. However, the entire debt must be for qualifying expenses. Buying just one CD or movie ticket disqualifies the entire amount from being deductible unless you use a different card to keep things separate.

    A small amount of the increased credit card debt is from people like me taking out $25,000 in 0% no-fee credit-card debt and putting it in to a high yield (5+%) money market account. Probably doesn’t amount to much, since the number of people willing to have that much credit card debt that are disciplined enough to borrow that much money and not spend it is pretty small. It is a nice, risk-free $100/month, but you need to make sure all your payments go through on time.

  15. NotAPro commented on Aug 8


    My cousin was thinking of doing the same thing. Where are you getting this credit from? It’s my understanding that writing yourself a check (for balance transfer) is considered valid.

  16. jkw commented on Aug 8

    If you have a good credit history, you should be getting offers in the mail for 0% introductory rates on balance transfers. Some of them come with no fees. Transfer the balance to another credit card, then call the second company and ask for a refund of your credit. Be careful with where you transfer the money, some companies don’t like getting a balance transfer of several thousand dollars when you don’t owe them anything. Citibank is generally recommended as they don’t care and have a convenient link on their website so you don’t even have to call them.

    Writing a check to yourself might count as a balance transfer and it might count as a cash advance. Read everything that comes with the checks carefully, or you might get charged a 3% (or higher) fee with no maximum and have to pay 20+% interest rates from the day the check clears. Credit card companies are very good at deceptive wording. Do not do this if you are at all unreliable about making payments on time or if you don’t know what “universal default” means.

    And remember that your credit score will be terrible until you pay off all the debt. Having 90+% utilization on even just one card drops your score significantly. Potential consequences include being denied good loans and having other creditors cut your limits or even close your accounts. Do not even think about doing this if you have to apply for important loans in the next year. Expect it to take up to 3 months for your credit score to recover after you have paid the balances in full.

    There are many threads about doing this on various financial community websites. fatwallet.com is one example. People discuss strategies and potential problems. They also provide updates when things change. Some people are doing this with $100k+ in total loans at intro rates.

  17. albiegf13 commented on Aug 8

    RTC, Vietnam, Paris Hilton……? I vote for Paris…. Beacuse we exist in such an acquisitive culture, I’m not the least bit surprised at the numbers… Soon America will have a new class of citizen, the “indentured servant class”. These folks will not be easily identified by vision but rather by the level of anxiety that they demonstrate in their daily routines…. If you want to look like Paris and live like Paris, you better have a mommy and daddy like Paris’….

  18. Andy commented on Aug 8

    Mike, the reference to the Philly Fed is to the Philadelphia Fed’s Survey of Professional Forecasters. Basically they poll Wall St. economists. So don’t jump the gun so fast on the conspiracy theories.

  19. Debt Settlement Lawyer commented on Apr 27

    inflation is the secret tax that just goes up every year with the federal reserves worthless fiat money inflation will always be a problem keeping the poor poorer

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