There are the numbers, and then there are the expectations for the numbers. The difference between the two is where investors dare to tread and where the Federal Reserve hopes to flex its muscle.
High inflation has squeezed consumers and companies for 18 months. And while it has backed off its summertime peak, prices continue growing at an annual rate not experienced in more than a generation. Still, Americans are hopeful that prices will continue to cool over the next year. Yet households think inflation will be much stronger than the economic professionals at the Federal Reserve foresee.
This could be described as the expectations gap. That gap is important because it can shape spending habits, which play a large role in whether the American economy experiences a recession and, if so, how bad it could be.
