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How the Fed Reads Surging Inflation Expectations
Description
The Federal Reserve is watching a subtle but dangerous signal: consumer inflation expectations are rising even as core inflation moderates. In this episode, Lucas and Luna break down the May CPI print and the 10-year breakeven inflation rate, which hit 2.32 percent on June 15. They explain why the Fed cares more about what people think inflation will be than what it is today — and how that shapes rate decisions. Lucas walks through the sticky psychology of price expectations, from the University of Michigan survey to TIPS market pricing, and why the Fed might pause despite hot headline numbers. Luna challenges whether expectations actually drive behavior or just reflect current pain. The hosts tie it to the Fed's evolving view of the neutral rate and the risk of entrenched inflation.