Inflation Expectations.

In plain English

Inflation expectations are the rate of future price increases that people anticipate, measured through surveys and market prices. They matter because they can be self-fulfilling: if workers expect prices to rise, they ask for bigger raises, and if businesses expect higher costs, they raise prices, both of which push actual inflation up. The Fed watches expectations closely, because keeping them anchored near its 2 percent goal is half the battle in controlling inflation. Unanchored expectations are much harder to reverse.

01Why it matters

Inflation expectations can become self-fulfilling and are a key reason the Fed acts firmly on inflation, so they shape rate policy and borrowing costs.

02The math, step by step

A survey shows consumers now expect 5 percent inflation next year, up sharply. The Fed worries expectations are slipping and leans toward higher rates to rein them back in.

03What this is NOT