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Home > Coronavirus > CHART OF THE DAY: A key measure of future inflation implies disinflation risks

CHART OF THE DAY: A key measure of future inflation implies disinflation risks

Nov. 20, 2020 by Joseph Brusuelas

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The Federal Reserve’s preferred forward-looking inflation metric — called the five-year, five-year forward break-even inflation rate — implies that pricing risks to the economic outlook revolve around disinflation, not inflation, over the next 10 years.

The metric — which measures the expected inflation rate over the five-year period that begins five years from now — stands at 1.79%, just below the expected 10-year rate of 1.9% implied by market pricing 10 years hence. Notice that the current level is well below the 20-year average of 2.4%.

While we do not anticipate a return to the pandemic-induced low of 0.80% as the second wave of the coronavirus dampens economic activity over the next four to five months, one would expect forward-looking metrics of inflation to signal further disinflationary risks.

The policy implications of this are significant. This strongly suggests that the market does not expect inflation linked to current or future deficit spending. This also implies that there is sufficient fiscal and monetary space to address the current pandemic-induced crisis and modernize the economy and its aging infrastructure.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.

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Filed Under: Coronavirus, Economics Tagged With: coronavirus, Covid-19, disinflation, inflation, Joseph Brusuelas

About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

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