Your daily fail: “The expected rate of inflation over the next 30 years, as measured by the difference between Treasury Inflation Protected Securities, Tips, and cash government bonds, dropped as low as 1.85 per cent in recent days from 2.73 per cent since last month. The rate was just under 2 per cent on Tuesday.”
Lars Svensson and others have a principle that central bankers ought to “target the forecast.” This means you need to align your forecasts of what’s going to happen with your proposed actions. If the pilot of your airplane says “at the current pace we’re going to land about an hour late,” you might ask him why he doesn’t fly faster. You expect him to have a good answer. Maybe the plane can’t fly any faster? Maybe you’ll run out of fuel if you go that fast? Maybe you’re not cleared by the tower to land at that time so there’d be no sense in going faster? There could be reasons. Central banking ought to be the same. If your forecast is for a prolonged period of high unemployment, people ought to be asking you why you don’t do more. If there’s a good answer to that question, it ought to be “I’m afraid of raising already high inflation expectations.” What we’re seeing, instead, is slow and falling inflation expectations.
It’s what failing looks like.