By Alberto J. Boquin, CFA
The Federal Reserve (Fed) has an inflation problem. The central bank is not generating enough of it. As a result, market and consumer inflation expectations are plumbing new lows. The 5-year forward inflation breakeven derived from Treasury and the Treasury Inflation-Protected Security ((TIPS)) market prices is around 2%. The University of Michigan Survey of expected inflation shows a similar trajectory (see Chart 1). This matters because it limits how high nominal short rates can rise before the next recession. In turn, this proximity to the zero lower bound constrains monetary