Political identity and inflation expectations
Rupal Kamdar, Walker Ray, and Mauricio Ulate examine how political identity shapes both individual and higher-order beliefs (beliefs regarding others’ expectations) about inflation expectations in the United States. The authors conducted three waves of surveys between mid-2023 and April 2025 using Prolific, an online sampling platform. Each survey included approximately 600-1,800 respondents, stratified equally among Democrats, Republicans, and Independents.
Survey Waves:
- Wave 1 (July/September 2023): Focused on information treatments from partisan news sources during Biden’s presidency
- Wave 2 (November 2024): Conducted around the presidential election to examine conditional beliefs based on electoral outcomes
- Wave 3 (April 2025): Following Trump’s “Liberation Day” tariffs announcement to assess beliefs under different tariff scenarios
Findings
- Partisan gap in inflation expectations: The research confirms that supporters of the sitting president consistently report lower inflation expectations than opposition supporters. During Biden’s presidency, Republicans expected inflation roughly 2 percentage points higher than Democrats. After Trump’s 2024 election victory, this gap reversed, with Republicans reporting expectations 3-4 percentage points lower than Democrats.
- Systematic overestimation of political disagreement: While respondents correctly understand the direction of partisan differences, they consistently overestimate their magnitude by approximately double. In 2023, the actual partisan gap was 2 percentage points, but perceptions exceeded 4 percentage points. By 2025, actual gaps of 3-4 percentage points were perceived as exceeding 8 percentage points.
- Self-perception as moderate: Individuals across all parties view their own inflation expectations as more moderate than their partisan peers, positioning their personal forecasts between what they believe Democrats and Republicans expect. This pattern suggests people see themselves as less extreme than their own party members.
- Information effects: Factual reporting compressed belief distributions toward reported information regardless of source or party affiliation. However, information treatments had minimal impact on higher-order beliefs about what others expect.
We Think That They Think: Political Affiliation and Higher-Order Beliefs
Authors: Rupal Kamdar, Walker Ray, Mauricio Ulate
From: Indiana University, Federal Reserve Bank of Chicago, Federal Reserve Bank of San Francisco
