The Inflation Research Digest is a quarterly newsletter published by the Cleveland Fed’s Center for Inflation Research. It highlights research events organized by the center and research papers from the Federal Reserve System and other institutions, announces calls for papers for workshops and conferences, and provides links to inflation-related data.
September 24–25 The Center for Inflation Research at the Federal Reserve Bank of Cleveland and the European Central Bank (ECB) will host the Inflation: Drivers and Dynamics Conference 2026 in person in Cleveland.
The authors rely on a large-scale survey of US households to measure how changes in the federal funds rate affect economic conditions and their own behavior. Higher interest rates lead households to reduce consumption spending, particularly on durable goods, but the underlying mechanisms differ from those in standard macroeconomic models. Households expect monetary tightening to raise borrowing costs and inflation. Consumption function estimates identified using information treatments reveal that households respond to higher expected inflation by reducing consumption.
Source: Grigoli et al. (2026) Note: The figure shows the percent change in future consumption, decomposed into seven underlying transmission channels, in response to a 1 percentage point increase in the federal funds rate. The bars on the left visualize the change in consumption over the next 3 months and the bars on the right show the change in consumption over the next six to 12 months.
The paper studies how debt news shapes firms’ inflation expectations. In an active control experiment, German firms receive projections of other European countries’ debt-to-GDP ratios. Pessimistic news raises debt beliefs and increases one-year-ahead and three-year-ahead inflation expectations, with no detectable effect for five-year-ahead expectations. The response is driven by firms that have low trust in the European Central Bank (ECB) and by firms expecting relatively low ECB policy rates. The evidence suggests that debt news becomes inflationary when firms perceive incomplete fiscal backing and expect monetary accommodation in the context of a Fisherian framework.
Source: Bianchi et al. (2026) Note: This figure plots the effect (and corresponding 95 percent confidence bands) of debt expectations on inflation expectations. The dark blue bars refer to the treatment effect for firms with low trust in the ECB, and the light blue bars refer to the treatment effect for firms with high trust in the ECB.
