Is the fed failing to re-anchor expectations? An analysis of jumps in inflation swaps

Abstract

We investigate US inflation expectations de-anchoring by analyzing tail behavior of inflation swaps. We extract probabilities of jumps in inflation expectations along with their potential jump severity and look through an event study approach and a regression analysis on how Fed policy impacted these. Our findings suggest that recent increases in interest rates and FOMC announcements of hikes did not manage to re-anchor short term inflation expectations as both probabilities and intensity of potential inflation boom/crash anticipations remain broadly independent of announcements and short-term interest rates dynamics.