The expectations of Americans for inflation one year from now have hit their lowest levels in two years, despite the same respondents predicting they will be enduring harsher financial times in the coming year, according to a new New York Fed report released on Monday.
The bank found in its May Survey of Consumer Expectations that respondents believe that one year from now inflation will hit 4.1%, decreasing from 4.4% in April. However with respect to price pressures, the expectation for the level of inflation three years from now was at 3% in May, up from April’s 2.9%, while in five years it is seen as likely to have hit 2.7%, compared to last month’s 2.6%
The survey also found there were expectations of food, rent, medical, and college costs falling over the next year, while the expectation for increases in home prices saw gains extended for a fourth month straight. Expectations for the increase in gas prices held steady at 5.1% for May.
The report comes just before the Federal Reserve is set to hold another policy meeting which is expected to see them pause their campaign of interest rate hikes for the first time since they began hiking rates in March of last year.
The Fed had been hiking rates at one of the most aggressive paces seen in decades as it sought to combat inflation readings which were coming in at the worst levels since the 1980’s.
The cumulative effects of the increases, mixed with cooling price pressures and fears over potentially tipping the US economy, and maybe the global economy into recession, have many central bankers leaning toward holding off on another rate hike when they meet in Tuesday and Wednesday to issue a policy decision. Many economists expect there will be other rate increases later in the year however.
As near-term inflation levels are expected to decline it removes some of the pressures on the Fed to hike rates again, given that policy makers have gone on record stating that the public’s expectation for inflation in the future weighs heavily on their decision-making processes.
The New York Fed also found opinions on the future of borrowing money were a tad more gloomy, with the report saying, “Respondents’ views about future credit availability deteriorated slightly,” the report said, adding “the share of respondents expecting tighter credit conditions a year from now increased, while the share expecting looser credit conditions declined.”
It also noted households were predicting somewhat better earnings, as well as a small increase in future projected spending. The respondents also indicated they are not as expectant of unemployment to increase a year from now, with the probability of losing one’s job over the coming year at the lowest level since April of 2022.
