How does FOMC measure inflation expectations?

Answer:

One of the tools, among probably many others, is comparing the yields between conventional Treasury securities and TIPS (inflation-protected securities sold by the U.S. Treasury). This can provide a useful measure of the market's expectation of future CPI inflation. Measuring inflation expectations is important because people's expectations about inflation influence their behavior in the marketplace and, in turn, have consequences for future inflation.

First answer by Mabrozek. Last edit by Mabrozek. Contributor trust: 230 [recommend contributor recommended]. Question popularity: 11 [recommend question].