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Has the Fed lost credibility, as some people have argued (e.g., EJ Antoni)?

One way to assess credibility is to see whether people’s expectations of inflation at the medium term (say 3 years) comes close to the implicit target. With a PCE y/y inflation target of 2%, this means a 2.45% CPI target. Using this, and the NY Fed’s survey of consumers (not economists), we get the following picture:

Figure 1: Bordo-Siklos (2015) credibility measure using 2.45% target (blue), squared deviation of expectation from 2.45% target (green), 75th percentile deviation from 2.45% target (red). NBER defined peak-to-trough recession dates shaded gray. Source: NY Fed, NBER, and author’s calculations.

My answer: No. At a minimum, Fed credibility with respect to medium term inflation is as high as — if not greater than — it was at the end of the Trump administration.

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