NY Fed survey finds waning near-term inflation expectations

AMERICANS said in June they were expecting the weakest near-term inflation gains in just over two years, while continuing to mark up the expected path of home price increases, a survey from the New York Federal Reserve showed on Monday (Jul 10).

The New York Fed reported in its Survey of Consumer Expectations for June that respondents see inflation levels a year from now rising by 3.8 per cent, down from the 4.1 per cent gain expected in May. The June reading was the weakest since April 2021, and marked a three-percentage-point drop from the peak a year ago.

The inflation outlook at longer horizons, however, was mixed, with the projected level three years ahead holding steady at 3 per cent but rising to 3 per cent five years out from May’s 2.7 per cent reading. The Fed’s inflation target is 2 per cent.

The survey also found that expectations for future home price increases marked their fifth straight monthly improvement, retracing levels seen a year ago. Survey respondents foresee home prices rising by 2.9 per cent, compared to the 2.6 per cent rise expected in May.

The survey also found that respondents saw improved outlooks for their personal financial situations and for accessing credit.

But their view on the labour market was mixed. The number of respondents who said it was probable that they would lose their jobs in the next year rose to 12.9 per cent, the highest reading since November 2021, while expectations that the overall unemployment rate would rise hit the lowest reading since April 2022.

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Survey respondents also said they expected petrol prices to fall while forecasting a rise in rental costs.

The survey was released as the US Federal Reserve weighs its next step in an interest rate hiking campaign aimed at lowering high levels of inflation. Fed officials, who believe inflation expectations readings are a key driver of where inflation stands now, will likely be heartened by the drop in near-term expectations in the report.

The rise in the expected level of home price increases may worry the Fed. Some central bankers have noted the housing market may be bottoming out from the hit it took from the aggressive rate hikes that have pushed the US central bank’s benchmark overnight interest rate from the near-zero level in March of 2021 to the current 5 per cent to 5.25 per cent range. Dallas Fed president Lorie Logan said last week that a rebound in the housing sector was a potential source of risk for future price pressures. REUTERS