From the Federal Reserve Bank of Atlanta's Macroblog:
In the latest Wall Street Journal Economic Forecasting Survey,
conducted August 3–6, economists were asked whether they "expect[ed]
the Fed to start another round of large-scale bond buying in 2012?"
Sixty-three percent answered yes, and 49 percent expected a program
would be announced in September, presumably at the end of the next
meeting of the Federal Open Market Committee (FOMC) on September 12–13.
Obviously this question is of interest to more than just business
economists. For example, at his July 17 testimony before the Senate
Committee on Banking, Housing, and Urban Affairs, Sen. Mike Crapo asked
Fed Chairman Ben Bernanke whether the FOMC should seriously consider
more quantitative easing going forward. As part of his response, the
Chairman said that "we would certainly want to react against any increase in deflation risk." The entire video exchange can be viewed at the 52–55 minute mark here.
As part of the Atlanta Fed's Inflation Project,
we regularly update probabilities of deflation in the Consumer Price
Index (CPI) estimated from Treasury Inflation-Protected Securities
(TIPS) prices, described here and here.
The basic idea is that a recently issued 5-year TIPS has less
"deflation protection" than a 10-year TIPS maturing about the same date
as the 5-year TIPS. The yield spread between the 5-year TIPS and 10-year
TIPS can be used to help estimate the probability of deflation.
The most recent (August 8) estimate puts the 5-year probability of
deflation from early 2012 to early 2017 at around 15 percent. As seen in
the figure below this probability is up slightly from May, but only
about half the readings of the 5-year (2010–15) deflation probability
seen in the late summer and early fall of 2010 and considerably below
readings seen during the height of the financial crisis in late 2008 and
early 2009.
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