U-Mich Inflation Expectations Index Disappoints in April, Puts the Case for Fed Hikes on Hold

U-Mich Inflation Expectations Index Disappoints in April, Puts the Case for Fed Hikes on Hold

US citizens’ long term inflation expectations as determined in the poll by the University of Michigan registered a surprise drop in April. Data released last Friday showed that the highly influential University of Michigan Consumer Confidence index dropped to 89.7 to its lowest point in 8 months. The preliminary figure for April which was predicted to show a rise to 92 from the previous reading of 91, missed expectations weighing on the US Dollar.

Many economists consider inflation expectations as being a necessary prerequisite for inflation and the development over time is not looking good. But the FOMC does consider inflation expectations as being a necessary prerequisite for inflation.

The greenback fell against majority of its peers on Friday as a slide in oil prices and the release of weak U.S. consumer sentiment data dampened risk appetite and put the case of additional rate hikes from the Federal Reserve on hold. Hardly surprising therefore that the market prices in less than half a Fed rate step for this year.

“Persistently low price expectations increase the risks of monetary policy remaining highly accommodative for longer than currently expected,” said Jesse Hurwitz, an economist at Barclays in New York.

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