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Issue #25 | May 28, 2019

Recently, from the Cleveland Fed

  • No college degree? Job options depend on where you live

    No college degree? Job options depend on where you live

    For nearly a decade, job growth has favored the college educated, but where does that leave the 68 percent of US residents 25 and older who do not have a four-year college degree? The updated report Opportunity Occupations sheds light on how specific education requirements in metro areas depend on the preferences of employers, ultimately resulting in different levels of opportunity for workers in each region. Review the job opportunities.

  • Determining banks’ soundness requires attention to cyber-risks

    Determining banks’ soundness requires attention to cyber-risks

    “The US Council of Economic Advisers estimated that malicious cyber activity cost the US economy between $57 billion and $109 billion in 2016,” noted Cleveland Fed president Loretta J. Mester in a recent speech. Such cyberattacks systematically target financial firms, like banks, that play a vital role in the financial system. President Mester emphasized that cybersecurity is a high priority for the Fed and discussed the standards and risk-management practices banks adhere to in order to ensure a resilient financial system that supports a strong economy. Find out what the Fed’s doing.

  • Majority of small employer firms expect revenue growth in 2019

    Majority of small employer firms expect revenue growth in 2019

    According to the 2019 Report on Employer Firms, 72 percent of firms are optimistic about revenue growth in 2019. This Small Business Credit Survey report, sponsored by all 12 Federal Reserve Banks, compiles information on small employer firms with 1 to 499 full- or part-time employees, highlighting their financing needs, business performance, and credit experiences. See how employer firms are faring.

  • What's a middle neighborhood

    What’s a “middle neighborhood”?

    An estimated 40 percent of residents of urban areas reside in middle neighborhoods, or places that are neither thriving nor overtly distressed. A member of the Cleveland Fed’s Community Development team describes the momentum the middle neighborhoods movement has gained in Northeast Ohio and what is being done to help direct attention to these areas. Learn more from this blog post.

Ask the Expert


What are inflation expectations, and why do they matter?


Inflation expectations are what people expect future inflation to be, and they matter because these expectations actually affect people’s behavior. It’s easy to understand how things in the past impact what I do today. Expectations about the future can also impact what I do today. For example, I may not buy a house, I may not invest in a piece of equipment or expand my business, or I might do it all, depending on my expectations.

If people expect inflation to be lower and they act on those beliefs, they could, in fact, cause inflation to be lower. If businesses expect lower inflation, they may raise prices at a slower rate; they don’t want the prices of their items to look too out of line with those of their competitors. If workers expect lower inflation, they may ask for smaller wage increases. The combination of businesses and workers acting in this manner will result in the economy experiencing lower inflation. Firms raise prices at a slower rate but also face lower wage pressures, while workers receive lower wage gains but see prices increasing at a slower pace.

The challenge for policymakers is that even though they know inflation expectations are important, expectations are not something that they can observe directly. They have to rely on measures of expected inflation that are constructed from surveys and economic models.

Businesses and the general public can use what’s known about inflation expectations to adjust their own inflation expectations. If I were expecting 1 percent inflation, and I learned that others were expecting 2 percent, I’d likely revise my expectations to something higher than 1 percent. Because I expect prices to go up faster—higher expected inflation—I might alter my actions and purchase items now before their prices go up.

Policymakers use inflation expectations as a barometer: How closely aligned are people’s expectations with the inflation objective the Federal Reserve wants to achieve?

The Federal Reserve’s inflation objective is 2 percent inflation, as inflation around this level is associated with good economic performance. A higher inflation rate could prevent the public from making accurate longer-term economic and financial decisions, while a lower rate may make it harder to keep the economy from falling into deflation should economic conditions become weak.

So if the public expects inflation to be 1.4 percent, then we now have a worrisome disconnect. Policymakers will take that as a sign that people don’t think the Fed can hit its inflation objective. We might then see the scenario I described above, where lower inflation expectations could set in motion forces to move inflation lower and thereby make it more difficult for the Fed to achieve its 2 percent inflation objective.

Bonnie Blankenship

Rob Rich

is director of the Cleveland Fed’s Center for Inflation Research, which just launched resources online for the general public, policymakers, and researchers.

Graphic of the Month

Uncover new lending trends across the country with the updated Home Mortgage Explorer

The interactive tool, updated to include recent years of data collected through the Home Mortgage Disclosure Act, helps you quickly and easily navigate data records from tens of thousands of home mortgage originations post-housing crisis to see lending patterns in specific metro areas, states, and the nation.

Uncover new lending trends across the country with the updated Home Mortgage Explorer

By the Numbers

On the Calendar

  • Summer’s just around the corner

    Get in the game at the Cleveland Fed’s Learning Center and Money Museum (Cleveland, OH)
    Open 9:30 am to 2:30 pm, Monday–Thursday. Closed bank holidays.

  • June 10, 2019

    WWI 360: Teach Like an Ace. An Interactive and Interdisciplinary Teacher Workshop, 9 am–4 pm EDT (Columbus, OH)

  • Policy Summit 2019

    June 19–21, 2019

    Policy Summit 2019: Connecting People & Places to Opportunity (Cincinnati, OH)

From around the Federal Reserve System

Interviews chronicle Fed history through the years

Step back in time with 50 former policymakers and senior Federal Reserve Board staff members—including former Fed chairs Volcker, Greenspan, and Yellen—as they recount Fed developments and their decisions over the years.

Interviews chronicle Fed history through the years

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