For example, a cross-country study of inflation expectations by staff of the European Central Bank found that, since 1990, both the average level of expected inflation and the volatility of reported expectations of inflation in the United States have declined, the latter quite significantly (especially since 1999).7 However, as an aside, it is interesting that both surveys and the inflation compensation priced into the yields on indexed bonds suggest that today long-term inflation expectations in the United States remain in the vicinity of 2-1/2 to 3 percent, above the range of inflation that many observers believe to represent the FOMC's implicit target.
Possibly, this observation indicates an ongoing process of adaptive learning. A subtler issue is the degree to which inflation expectations in the United States are anchored. Specifically, to what extent would inflation expectations rise if actual inflation increased for some reason? To address this question, Andrew Levin, Fabio Natalucci, and Jeremy Piger (2003) examined U.S. private-sector forecasts of inflation since 1994.