The Fed Is Terrified Americans Are Losing Faith That Inflation Will Return to Normal

The Federal Reserve is facing a challenging situation as public confidence in the return to normal inflation wanes. Inflation expectations have hit their highest level since 2011, complicating the Fed’s task. If these expectations continue to rise, the Fed may be compelled to further tighten monetary policy, potentially leading to higher interest rates for a prolonged period. This situation could create a deflationary scenario, where persistent high inflation erodes public trust and forces the Fed into more aggressive action, risking a slowdown in economic activity and potential deflationary pressures.