Federal Reserve and Bank of England face trust-driven inflation expectation risks

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Fed & BoE inflation expectations

Highlights

Over 35% of U.S. households and 28% of UK households expect inflation to average 5%+ long-term, up from historic averages of 22% and 15% respectively.
Bank of England's net trust margin has turned negative post-Covid and Truss mini-Budget, dropping from over 40 percentage points in 2003 and failing to fully recover since the financial crisis.
Federal Reserve trust, as indicated by a social media-based index, remains negative and below 2014 levels due to political interference and scandals, despite a modest rebound at the start of Kevin Warsh's tenure.

Rising household doubts about price stability

As reported by Financial Times, households in both the U.S. and UK are increasingly expecting inflation to stay well above central bank targets over the long term, a sign that expectations are becoming de-anchored. In the U.S., more than 35% of households expect inflation to average 5% or more over the next five to 10 years, compared with an average of 22% between 1999 and 2019.

In the UK, 28% of households expect inflation of 5% or more five years ahead, the highest reading since the Bank of England began asking the question in 2009. That compares with an average of about 15% between 2009 and 2019, underscoring how expectations remain elevated even after the peak of the 2021-22 inflation surge.

Such expectations matter because they can influence current behavior, including spending plans and wage demands. While policymakers often argue that heightened inflation expectations mainly reflect households' recent experience of higher prices and greater attention to inflation, the article argues that this explanation misses a more persistent factor, trust in the institutions responsible for price stability.

Credibility pressures for U.S. and UK central banks

Bank of England survey data indicate public trust in the institution has not recovered to pre-financial crisis levels. The margin between those satisfied and dissatisfied with the BoE's performance was more than 40 percentage points in 2003, fell below 20 points after the financial crisis, later recovered to around 30 points during Mark Carney's tenure, and is now negative, after the post-Covid inflation peak and the fallout from Liz Truss's mini-Budget.

Additional social media analysis cited in the text also points to a sharp deterioration in trust during Andrew Bailey's leadership, following an earlier recovery. At the same time, recent speeches by BoE policymakers are described as giving limited attention to trust, despite the central bank's own statement that its mission depends on public confidence.

Trust in the Federal Reserve is also described as weakening over time. Research by David Aikman, Francesca Monti and Shunshun Zhang uses millions of Twitter/X posts from 2012 to 2025 to build a Fed trust index, and the article says that measure has been extended with Bluesky posts into the start of Kevin Warsh's tenure.

That research suggests political interference, including attacks by U.S. President Donald Trump, has weighed on confidence in the Fed, alongside reputational damage from trading disclosure scandals involving Eric Rosengren and Robert Kaplan. Although there are signs of a recovery at the outset of Warsh's leadership, trust remains negative overall and below 2014 levels, leaving central banks with a credibility challenge that could complicate the fight to contain inflation expectations.

Our earlier report on Kevin Warsh’s semiannual Federal Reserve testimony to Congress highlighted the Fed’s firm commitment to returning inflation to its 2% target as new data showed June consumer prices falling more than expected. We also noted how the combination of softer CPI and steady messaging underscored policymakers’ effort to keep price pressures contained and prevent inflation expectations from staying elevated.

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