Three-year inflation views at highest since 2022 in Fed survey

[NEW YORK] Americans’ expectations for inflation in the medium-term climbed to an almost three-year high in April while their views on the job market worsened, according to a monthly survey from the Federal Reserve Bank of New York.

Median expectations for inflation three years from now rose to 3.2 per cent in April, the highest reading since July 2022. Estimates for year-ahead price growth, however, held steady, and longer-term inflation views edged down to 2.7 per cent.

Fed officials are closely monitoring Americans’ estimates of future price pressures to help assess whether US President Donald Trump’s policy changes, particularly around trade, will spark a persistent bout of inflation. The extent and duration of tariffs remains unclear, likely contributing to respondents’ rising uncertainty about future inflation.

The US central bank held interest rates steady on Wednesday (May 7), pointing to a still-solid economy and increased uncertainty around the outlook. But recent surveys have shown a sharp deterioration in household sentiment.

Recession concerns have grown, and most economists expect tariffs to boost prices and weigh on growth. Chair Jerome Powell and his colleagues said they see a greater risk of facing both higher inflation and unemployment.

Consumers’ views on their ability to find a job in the next three months fell to the lowest since March 2021, the New York Fed survey released on Thursday showed. The drop was most pronounced for those over 60 years old. Additionally, the mean probability that the unemployment rate will be higher in a year rose to the highest since April 2020 – at the onset of the pandemic.

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Worsening finances

As the outlook for the economy and jobs market darkens, Americans’ perceptions of their future finances has deteriorated. More than a third of households expect their financial situation to be worse a year from now, the most since 2022. A similar share see their current situation as worse than a year ago.

The perceived probability of missing a minimum debt payment over the next three months increased, while expected household income growth fell to the lowest since April 2021. Consumers also anticipate to pay more for gas, college and medical costs in the year ahead. Price expectations for rent jumped 1.8 percentage points to 9 per cent.

Despite recent financial market turmoil, the mean perceived probability that US stock prices will increase in the next 12 months rose. BLOOMBERG