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Consumers see lower inflation and spending growth in Fed survey

[NEW YORK] American consumers' expectations for inflation and spending growth fell last month to the lowest level in records going back to June 2013, according to a monthly Federal Reserve Bank of New York survey released on Tuesday.

The median respondent to the New York Fed's September Survey of Consumer Expectations predicted annual consumer-price inflation three years from now would be 2.8 per cent, down from 2.9 per cent in the August poll. Median expected inflation a year ahead fell to 2.7 per cent from 2.8 per cent.

The median consumer also predicted an increase in household spending of only 3.2 per cent over the next year, down from 3.5 per cent the month before.

The data release follows a Sept 16-17 meeting at which Fed Chair Janet Yellen and her colleagues on the policy-setting Federal Open Market Committee decided against raising the benchmark federal funds rate from near zero, where it has been held since December 2008.

Ms Yellen, Fed Vice Chairman Stanley Fischer, and New York Fed President William C Dudley have all said in public appearances since then that they expect to raise rates before the end of this year, provided the economy grows as they predict and they retain confidence that inflation will rise toward their 2 per cent goal over the medium term.

Continued strength from the American consumer to propel domestic growth is key to Fed officials' positive outlook for the US economy, even as slowing growth abroad and a stronger dollar weigh on US exports.

Spending is being restrained because consumers are still paying down debt accumulated before the recession, according to Chicago Fed President Charles Evans, one of the few on the FOMC who doesn't want to raise rates this year. Fed projections released last month show that 13 of 17 policy makers expect a rate rise to be warranted by year-end.

"I think we're continuing to see households make adjustments, deleveraging their balance sheet," Mr Evans told reporters Monday after a speech in Chicago. "So in that environment, that's one of the headwinds that I think many of us are referring to when we say, as long as these headwinds stay in place, I can imagine a very gradual pace of normalization so that we can see how this plays out."

BLOOMBERG