In January, however, survey respondents were asked to assign probabilities to rate outcomes at the end of 2017 and 2018 conditional on two different scenarios: “returning to the zero lower bound (ZLB) at some point in 2016–2018,” or “not returning to the ZLB at any point during 2016–2018.” Respondents were also asked for their subjective view of the probability of each scenario, a topic that I will discuss later. We changed the survey both  42  This is the case for some of the variables of interest, such as the level of the policy rate or, in the past, the projected level of the balance sheet. 43  As noted earlier, questions that elicit a “most likely” value, or mode, can be difficult to interpret. This is particularly true of questions about the path of a variable, for example, the federal funds rate. If respondents are asked for their modal path, then technically, they should give the mode of the joint distribution. For example, the “mode” for policy rate projections could be the mode across all paths that the federal funds rate could follow from 2016 to 2018. It is an open question whether survey participants respond in this way, or respond with the mode of each marginal distribution. 44  A number of explanations are in order. The survey asks for probabilities (marginal distributions) associated with bins for the federal funds rate.
In both the SPD and the SMP, many of the questions are tailored toward matters that are of policy relevance at the time of the survey. Further, we use the fact that the respondents are market professionals with a good understanding of finance and economics to ask direct and at times technically complex questions. In this regard, the surveys contrast with the SCE, which uses language that is accessible to respondents with no economic or financial training.41  37  See Armantier et al. (2016). 38  Using a standard test of the difference between two distributions, the change from September to January is significant at the 1 percent level. The change from April to May has a “p-value” of 16 percent. 39  This dispersion implies that random samples of small size (less than one thousand) will exhibit variability even if the underlying population distribution of inflation expectations remains constant. 40  Correia-Golay, Friedman, and McMorrow (2013) provide an introduction to the SPD. 41  Many surveys of market participants do not use their technical sophistication to the extent necessary to produce robust measurement of expectations. For example, currently many surveys ask market participants to identify the FOMC meeting at which the next increase in the fed funds target range will most likely occur. This question implicitly assumes that the next rate change will be an increase; moreover, eliciting expectations about the most likely meeting when the number of future meetings is large is particularly uninformative.