Expectations metamorphosis – what does it signal?

Back in March I put up this chart:

Saying:

After taking a look at today´s Cleveland Fed “inflation expectations curve”, I just couldn´t resist the analogy with the Nike logo. As the saying goes, “Just do it”.

Unfortunately, despite encouraging signs mentioned by David Glasner the logo is “melting”. The latest inflation expectations curve, released together with the monthly CPI, shows the whole curve is down from three months ago.

And three months on the logo not only continued to “melt”, but “flipped”. This is the chart for the month of June/12:

And another three months on, the Nike logo changes into an “isoquant”, closely resembling the kind seen in the “Production Theory” section of micro texts.

After falling continuously, the short end of the inflation expectations curve “jumps” after June, with the long end remaining subdued. This transformation may be reflecting the chatter over the summer on the likelihood of “additional Fed action”. The behavior of the stock market, which reverses direction at the same time, is consistent with this conjecture.

I´m now curious to see the “mutation” which will show up next month. If the commitment pledged at the last FOMC meeting is believed, we should see the long end of the inflation expectations curve shift up, with the whole curve once more resembling a “Nike logo”, only at a higher level relative to the older ones. Riskier assets would remain attractive.

Will check back in a month.

2 thoughts on “Expectations metamorphosis – what does it signal?

  1. Japan and Nike…great charts.

    The anticipated rate of inflation is so low, that we are getting into dangerous territory (have been for years actually).

    Another downward shock, and we would be living in Japan-land.

  2. Pingback: Expectations metamorphosis – What does it signal? « Economics Info

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