Economics Webinar - Heterogeneity in Household Inflation Expectations: Policy Implications

We empirically characterize the heterogeneity in the conditional distribution of household inflation expectations across demographic groups using the Survey of Consumer Expectations and also investigate how the monetary policy shock affects the conditional distribution. We find that, across all the groups, the peak of the group-specific distribution of household inflation expectations aligns closely with the 2% target set by the Federal Reserve, but there is substantial heterogeneity in both within and across groups, primarily on the right. In response to a contractionary monetaty policy shock, households overall adjust their inflation expectations significantly downward, which implies that monetary policy is effective in stabilizing inflation expectations in spite of significant heterogeneities in the level of inflation expectations among households.