Based on the most recent reading in September 2022, about a quarter of respondents have deflation expectations five years in the future, nearly as large as the share expecting inflation above 4 percent at the five-year horizon. Following the onset of the pandemic, aggregate uncertainty—which combines disagreement and individual uncertainty—increased but has also become more symmetric. Figure 4 shows the aggregate distributions of inflation three years in the future based on the SCE.14 Two-thirds of the widening of distributions reflect greater dispersion across respondents, and the remainder is due to greater uncertainty reported by individuals.15 Interestingly, the distribution of aggregate uncertainty before and during the first year of the pandemic was skewed to the upside, as seen in Figure 4. Since then, the rising share of those who report deflation expectations has caused the overall distribution to become more symmetric relative to the median. In terms of the uncertainty criterion, uncertainty does not increase linearly with the forecast horizon in the SCE. Figure 5 shows the distributions of aggregate uncertainty for one-, three-, and five-year-ahead inflation forecasts from September 2022. As Figure 5 shows, the distributions are very similar for the different forecast horizons. This seems consistent with the evidence that many respondents view the inflation surge as reflecting a unique set of developments.16 An additional, albeit indirect, measure of inflation uncertainty is provided by the distribution of expectations of interest rates from options.17 Although future interest rates depend on a variety of factors, the expectations about inflation are a key determinant.

SPEECH  A Steady Anchor in a Stormy Sea November 09, 2022 John C. Williams, President and Chief Executive Officer Remarks at SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility, Zurich, Switzerland As prepared for delivery  It is a pleasure to be here today to discuss a timely and important topic: the anchoring of inflation expectations. Against the backdrop of the stormy seas of the global inflation of the past year and a half, a steady anchor is more critical than ever. But, what does it mean for inflation expectations to be well anchored, and how would we know if they are? In my remarks, I will describe three criteria for well-anchored inflation expectations. I will then provide an initial assessment of the behavior of inflation expectations in the United States against these three criteria since inflation surged in the spring of last year. I should emphasize the word “initial,” since we are still in the midst of the storm, and definitive conclusions on the anchoring of expectations will await the ship’s safe return. This is the perfect time to give the usual Federal Reserve disclaimer that everything I say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or anyone else in the Federal Reserve System. The critical importance of anchoring inflation expectations is now enshrined as a bedrock principle of modern central banking. One way central banks have sought to anchor expectations is through a commitment to an explicit longer-run inflation goal.