Those inflation expectations stay low

The New York Fed conducts monthly surveys of consumer expectations and the number show inflation expectations still moving lower (see Center for Microeconomic Data). The current reading for one year ahead expectations is the lowest on record since the survey began in 2013 at 2.33%. The same low expectations exist for home price changes with only a slight increase from the all-time lows in September. The drivers for lower inflation include lower medical costs and college education.

All survey data show persistence in low inflation expectations. The Fed has not been able to change these expectations and their behavior of lowering rates only reinforces views that there is no inflation on the horizon. There may be future surprises in inflation given the tightening labor markets, but earnings growth expectations are consistent with the inflation numbers at 2.3%. 

Inflation expectations will not be a driver for interest rates and only seem to place a lid on how high rates may go. It is hard to get nervous about sustained rate increases.