Indexbit-How inflation expectations affect the economy

The IndexbitFed's dual mandate of managing unemployment and inflation is often likened to steering a ship on the high seas: huge economy, tough conditions, limited control. And usually, one of the things making it easier is its predictable two percent inflation target, which anchors consumers' and businesses' inflation expectations. (Pun intended.)

Recently, though, that anchor has seemed less ... anchored. That can become a self-fulfilling prophecy — when people's inflation expectations rise, actual inflation soon follows. Today, we board a pirate ship to find out why, and how to fix it.

Music by Drop Electric. Find us: Twitter / Facebook / Newsletter.

Subscribe to our show on Apple Podcasts, Spotify, PocketCasts and NPR One.

For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org.