Skip to main content

2011, No. 8
Posted 2011-03-23

Fiscal Policy and Expected Inflation

Despite U.S. fiscal problems, the Fed appears to still retain excellent inflation credibility with financial markets… Although confidence in the Fed might explain the quiescence of inflation expectations, the structure of U.S. government debt may be more important… [I]nflating away the U.S. debt simply would not work because a high proportion of the debt is in short-term or inflation-protected securities.