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NY Fed researchers expect wages to decline

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Researchers from the Federal Reserve Bank of New York said new data show the uncertainty of inflation expectations has abated since the middle of 2008 and there is a continuing expectation that real wages will decline. The New York Fed in association with the Federal Reserve Bank of Cleveland and other consultants led the formation of the household inflation expectations survey in late 2006. The survey seeks to provide policymakers with improved measures of consumers’ inflation and wage expectations. The analysts said the Reuters/University of Michigan survey of consumers, "asks respondents to forecast changes in prices in general rather than changes in the rate of inflation," and this wording "invites diverse interpretations and prompts many respondents to focus on price changes specific to their own experience rather than changes in the overall price level." The Fed analysts believe their survey, which is conducted at six-week intervals, "has corroborated earlier findings of differences in inflation expectations across demographic groups and revealed marked changes in the size of these differences over the sample period." The analysts also want to see how consumers respond to specific price changes, as well as other economic and financial developments, and how fast they act. "The speed and possible heterogeneity of the updating process across individuals can be critical for a central bank as it seeks to forecast responses to policy actions and other events," according to the authors of the survey. Earlier this week, the Federal Open Market Committee kept the benchmark interest rate at 0% to 0.25%, and said current economic conditions "are likely to warrant exceptionally low levels for the federal funds rate for an extended period." Write to Jason Philyaw.

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