What are the inflation expectations of people who move serious amounts of money, The Fed today reported the yields of inflation-indexed bonds. The trend in the 30 year bond [due 2029] is similar, but at a current yield of 0%. And the 10-year bond below? – negative!! No sign of inflation expectations.
Furthermore, the Atlanta Fed blog has a nice post on the output gap. We looked at several methods of measuring potential GDP (in our notation, Y*) by looking at:
- projections (Hodrik-Prescott filters)
- Phillips curve approaches (using either U or π)
- modeling approaches (production functions, full macro (DSGE) models
But there are other approaches, too, specifically direct measurement of capacity utilization. The Fed reports a survey-based approach. The bad news first: they find even more excess capacity than the other approaches they use. The good news: the excess is shrinking.