The Fed's 2% inflation target is a level that's believed to be condusive to a "not too hot, not too cold" economy.
These days, many financial authorities not only expect this target to be reached, but exceeded. In other words, the Fed's deflation fears have considerably diminished.
Read this excerpt from an April 15 Wall Street Journal article:
When Federal Reserve officials gathered [in March] for Jerome Powell's first meeting as central bank chairman, not a single official among 15 saw a downside risk to inflation.
It marked a milestone.
The Fed's mind-set has been shaped during the entire post-financial crisis era by a fear of Japan-like deflation, a downward drift in consumer prices that brings with it debilitating economic anemia. Deflation fears led to giant Fed bond-purchase programs and near-zero interest rates, then glacial interest-rate increases when the expansion became entrenched.
The inflation risk assessment, released last week in the minutes of the Fed's March meeting, showed deflation fear at the Fed is now effectively gone. ...
Deflation fears are receding around the globe, too. In Europe, consumer prices were last lower on the year in May 2016. Annual inflation was 1.4% in March. Though still below the ECB's target of just below 2%, European Central Bank President Mario Draghi said at a December news conference, "We can safely say that deflation risks have disappeared."
But, when social mood shifts decidedly from positive to negative, Elliott Wave International anticipates that financial authorities will no longer speculate about the prospects of higher inflation.
Instead, they will be grappling with its opposite.
Indeed, the April Elliott Wave Theorist made this forecast:
Deflation will rage around the globe.
As noted, this is likely to occur after social mood turns extremely negative.
With that in mind, the main stock indexes are a reflection of social mood. When the DJIA is in an upward trend, social mood is growing increasingly positive. However, sinking stock market values and a negative trending social mood also go together.
So, expect deflation to follow a historically severe bear market in stocks.