Economists typically focus on longer-term inflation expectations, because short-term expectations jump around a lot in response to gas and food prices, which are volatile. Those longer-term measures offer more encouraging news: They remain low across a number of survey-based measures even after 18 months of rapid inflation.
But, as Mr. Powell alluded to, some economists think short-term inflation expectations could influence what workers ask for during pay negotiations. When people see everyday prices rising, they may want to cover those expenses even if they believe that inflation will simmer down over the long run.
“With inflation as high as it is, it’s very much on people’s minds,” said Karen Dynan, a Harvard economist. When it comes to short-term expectations as a wage driver, she said, Mr. Powell is “right to be looking at it: There’s a fundamental logic to it.”
That’s why recent trends in short-term expectations are at least somewhat worrying. Since late summer, some measures of short-term inflation expectations have edged up, and even those that haven’t remain very elevated.
In one survey of global employers that the insurance advisory firm WTW released this summer, 47 percent of those that were increasing pay more than they had initially expected in 2022 said they were responding to worker concerns and expectations.
Workers anecdotally report asking for more pay because of their rising costs. Ms. Oskoui, who moved to California from New York during the pandemic to be close to family, expects to receive a wage increase this year — perhaps 5 percent. But that would not be as big a move as she would like.
People like Ms. Oskoui have a good chance of earning more if they leave their employers. The job market is abnormally strong, with plentiful openings and scarce applicants, and the gap between how much wages are growing for people who leave their jobs and those who stay is unusually big: 7.1 percent versus 5.2 percent, based on the Atlanta Fed’s latest wage-growth tracker data.