I use the term "anchored" to mean relatively insensitive to incoming data. So, for example, if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored. If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored.
Fortunately, since it ought to square with observed happenings, this data set can be adjusted (via an artful process performed by the Cleveland Fed). The main (but not only) variable to compensate for is the difference in relative market sizes of conventional bonds (large) and indexed linked bonds (much smaller).
This disparity makes the underlying securities behave differently when, like now, an environment of financial stress prevails. At such times the premium investors demand for holding the less liquid indexed-linked bonds rises. Implied inflation expectations tend as a result to be understated.
The religion of well-anchored expectations, also known as Fed credibility, believes in the central bank's capacity to cap long term inflation. This stops producers trying to pass along short term price increases; and labour from turning out in Main Street for higher wages (except where GM lives). Virtuous circle rather than wage-price spiral.
If that faith swoons, as it risks doing, the high priests at the Fed will have serious proselytizing to do.
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