Federal Reserve policymakers warn: Rising inflation expectations will become a "stumbling block" to interest rate cuts

The Chairman of the Federal Reserve Bank of Chicago and FOMC voter, Charles Evans, warned that there are signs indicating that investors in the U.S. bond market are beginning to anticipate higher inflation, which would be a "major danger signal" that could disrupt rate setters' plans for interest rate cuts. A week before Evans made these remarks, a closely watched poll from the University of Michigan showed that long-term inflation expectations among American households had reached their highest level since 1993. Evans said: "If you see market-based long-term inflation expectations start to change like they have in the past two months' survey results, I would consider this a major danger signal that needs high attention." The five-year forward rate is currently at 2.2%, while the University of Michigan survey shows consumers expect long-term inflation rates to be 3.9%. Evans stated if investor expectations begin to align with those of American households, then the Fed will have no choice but to take action: "Almost under any circumstances, you must respond to this issue," he said.