September 20th, 2021, 10:07 pm
As I understand the FED considers the employment and inflation expectation when defining the monetary policy. I wonder what is the quantitative indicator or traded instrument FED uses to derive this expectation of inflation? I don't believe the Break Even Inflation is a good explanation, because this inflation expectation is calculate by subtracting the return of TIPs (inflation-adjusted return) from Nominal Return of T-Bond (return with inflation expectation) of the same maturity. As the Nominal Return of T-Bond is already the result of FED's monetary policy, so the FED should has some other approach to quantify inflation expectation. Thanks for you attention!