U.S. Michigan 5 Year Inflation Expectations ComparisonThe U.S. Michigan 5 Year Inflation Expectation Comparison in the image attached shows the difference of the past 3 presidential administrations. I'm not trying to make this a political issue, but merely just looking at a comparison of what the masses of people have expected the future inflation rates to be in the past in order to have an idea of what to expect in the future.
When looking at this comparison, it shows the difference between economic policies (different administrations) and their effects on inflation expectations. Granted, with some policy implementations having a lag effect, there is likely some overlap between administrations and their effect on the inflation expectations. The dashed orange lines show the limits of the majority of data points that fall within those dashed lines. Anything that plots outside the dashed orange lines are outliers / not normal (for the last 30+ years).
COVID obviously had an outsized impact on inflation expectations since the U.S. government printed massive amounts of new money (Quantitative Easing (QE) by the Federal Reserve) to offset the closing of the economy / lockdowns due to COVID. That is marked on the chart to show approximately when that would have started. Thankfully, when COVID hit, we were at historically the lowest inflation expectations in U.S. history (as far back as the data goes on this chart).
With our current administration trying to cut costs of the federal government and trying to increase external sources of tax revenue to offset decreases to internal tax revenue sources, I suspect that will decrease the federal spending (net effect). A large portion of our inflation in the U.S. economy comes from government spending and printing of new money (QE). Granted the Federal Reserve has been in a Quantitative Tightening (QT) mode lately to help cool recent elevated inflation. However, I bet the Fed will be going to a net zero (not QT or QE) stance soon before they begin QE again in the future.
This will, hopefully in the short term, help inflation expectations come down, but tariffs will pressure inflation to increase if tariffs aren't offset enough by the administration lowering the taxes on U.S. citizens and businesses to have a net zero effect (which is possible). If the Federal Reserve starts QE sooner than later (highly unlikely unless our economy goes into a recession), then that will certainly put a lot of pressure on inflation to go up. This is a mistake the Fed has done before in the past back in the 1970's / 1980's until past Fed Chairman Paul Volcker raised rates to the highest they've ever been to break the insane inflation rates back then. Time will tell if history rhymes again or not. I certainly hope inflation is tamed and not allowed to go crazy again. Please feel free to leave a comment / your thoughts below. I welcome all feedback on anywhere my analysis may have been wrong. Good luck trading / investing out there.
