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But even if they remain well anchored, expectations alone do not explain why inflation does not respond more to economic slack.
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"Instead, monetary policy is mainly a tool for stabilizing the macroeconomy and keeping inflation expectations well anchored".
Some countries have proactively tightened monetary policy to keep inflation expectations well anchored.
Turning to the fundamentals: Corporate borrowing needs have remained subdued to date as the corporate financing gap remains negative; inflation expectations remain well anchored and Fed credibility remains high; and last but not least, the recent downgrade in growth expectations for 2005 explains a significant portion of the most recent dip in the ten-year yield.
The minutes showed a consensus that inflation expectations were "reasonably well anchored," though a few policy makers feared that such expectations could rise in the medium term because of large fiscal deficits and extraordinarily low interest rates.
This expected upward correction notwithstanding, we expect inflation expectations to remain well anchored and within the narrow range they have been trading in for the past three quarters.
Nonetheless, a range of measures suggest that medium-term inflation expectations remain well anchored".
Mr. Kohn said it was imperative that inflation expectations remained well anchored.
"We know that inflation expectations are well anchored today, giving central banks greater leeway to support growth," she added.
He said that inflation expectations were "well anchored" and noted that $1 trillion in bank reserves was sitting at the Fed.
With inflationary expectations now well anchored just below 2% and the core rate of inflation at 1.6%, there seems little danger of inflation surging out of control.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com