Americans expect high inflation to stick around in latest NY Fed survey

Americans are bracing for high inflation to stick around over the next few years, according to a key Federal Reserve Bank of New York survey published Monday.

The median expectation is that the inflation rate will be up 3.3% one year from now, according to the New York Federal Reserve’s Survey of Consumer Expectations, an increase from the 3% rate recorded the previous month.

Consumers also anticipate that inflation will remain abnormally high in the coming years, projecting that it will hover around 2.8% three years from now and remain there five years from now – an increase from March’s 2.6%, according to the survey.

That remains above the Fed’s 2% target, indicating that sticky inflation could be here to stay. By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2.1% by 2025 and eventually settle at around 2% in 2026.

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Americans expect the cost of gasoline, food, medical care, college and rent to rise in the year ahead. They also anticipate that median home price growth will rise to 3.3%, the highest reading in the series since July 2022.

The survey, based on a rotating panel of 1,300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis. 

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That is because actual inflation depends, at least in part, on what consumers think it will be. It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%. Workers, in turn, will want a 3% pay raise to offset the rising costs.  

Fed Chair Jerome Powell has repeatedly stressed that policymakers are committed to wrangling inflation back to the Fed’s 2% target goal before they start to reduce interest rates.

“We’ve stated that we do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%,” Powell said during the Fed’s two-day meeting earlier in May.

The New York Fed survey also pointed to mixed sentiments about the labor market.

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The mean perceived probability of losing one’s job in the next 12 months jumped by 0.6 percentage points to 15.1%. But mean unemployment expectations – or the probability that U.S. unemployment will be higher one year from now – rose by 1 percentage point to 37.2% in March.

At the same time, Americans were more downbeat about their ability to find a job if they were to lose their existing one. The mean perceived probability of finding a job if one’s current job was lost fell for the fourth straight month, to 50.9% in March. 

It marks the lowest reading since April 2021.