By Megan Leonhardt

When inflation expectations are well anchored, companies, consumers, and investors believe that long-term price growth will stay under control, or close to a targeted level, notwithstanding short-term fluctuations. So important is the concept, especially to the conduct of monetary policy, that Federal Reserve officials have mentioned it nearly four dozen times in the past five weeks in public remarks and speeches.

Yet, for all their assurance, or self-assurance, new research from the Federal Reserve Bank of Cleveland, published on Feb. 2, suggests that expectations for consumer price inflation became less well anchored through the first half of 2025. The Cleveland Fed based its findings on an analysis of the University of Michigan's Surveys of Consumers one-year-ahead inflation expectations compared with historical trends.

By some measures, worries about spiraling price growth were akin to those Americans experienced during the 1970s period of runaway inflation, the Cleveland Fed found.

Expectations of greater inflation can quickly become reality, fueling demand for higher wages, which in turn leads to price growth. The 1970s witnessed just such a wage-price spiral, and the Fed is eager to avoid a repeat. Fed officials often emphasize the importance of bringing inflation, now close to 3%, back to their 2% target, as Fed governor Lisa Cook did this past week. "The longer inflation remains above target, the greater the probability that higher inflation will become entrenched in expectations," she said.

Consumers' expectations have been above target for a while, threatening the Fed's credibility. The latest University of Michigan's Surveys of Consumers, released on Friday, found that respondents expect inflation to reach 3.5% over the next year. Their median expectation for five years? A still-elevated 3.4%.

Those estimates are down from peak levels reached in 2025, however. In April and May of last year, year-ahead expectations exceeded 6%. Long-term median inflation expectations measured 4% or higher.

Despite the importance of well anchored inflation expectations, there is no consensus on how to measure projections. The Cleveland Fed's research compared recent UMich survey results to past periods when expectations became unanchored, such as the 1970s. Researchers compared consumers' year-ahead inflation expectations with those of professional forecasters tracked by the biannual Livingston Survey of economists and the quarterly Survey of Professional Forecasters, both conducted by the Philadelphia Fed.

Robert Rich, the co-author of the Cleveland Fed's paper and director of the Center for Inflation Research at the bank, says it isn't enough to expect that inflation will be low and steady, as measured by top line numbers in the UMich survey. To be considered well anchored, the inflation expectations of individual survey respondents must reflect a belief that inflation will trend toward target.

Drawing on previous Cleveland Fed inflation research, Rich examined the survey series using a metric that analyzes the extent to which inflation expectations respond to shocks and the degree to which they remain level with the Fed's inflation objective. He found that the anchoring of consumers' short-run inflation expectations as measured by UMich had weakened in 2025 to a much greater degree than that of professional forecasters, and to a degree exceeding consumers' expectations in the late 1970s.

Rich also noted that survey respondents' self-reported political affiliations correlated to a high degree with their inflation expectations. The average inflation expectations among Democrats and Independents rose sharply in the period studied, while Republicans' expectations declined. The results would have been even more concerning, he says, had the rise in inflation expectations been more "evenly balanced" among affiliations.

The duration of periods of less anchored or unanchored expectations also matters. Expectations became unanchored last year for just a few months, unlike in the 1970s, when doubts that inflation would stay low and steady lasted about a decade.

These factors suggest that history won't repeat, at least not soon. That should comfort Fed officials, and the rest of us, too.

Write to Megan Leonhardt at megan.leonhardt@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 06, 2026 17:37 ET (22:37 GMT)

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