Markets, Fed have very different ideas about inflation

The Federal Reserve now looks set to raise rates in December, partially based on expectation that inflation is set to finally rise to its 2 percent target. 

There's only one potential problem. There's actually a way that markets can see where investors think inflation will go. And they do not exactly see eye to eye with America's central bank.

 Over the next five years, annual inflation is expected to run at less than 1.3 percent. Even over the next ten, investors are looking for no more than 1.6 percent per year. 

The Fed is well aware of this thinking among investors. In fact, the minutes to the Fed's October meeting record that "a couple of members expressed concern about the continued decline in market-based measures of inflation compensation." To be sure, the comparison here is not apples-to-apples, but it bears mentioning.

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