NY Fed survey finds broad cooling in inflation expectations

By Michael S. Derby

NEW YORK (Reuters) – Americans said last month they expected weaker inflation over the next few years, and they also marked up their own views of their personal financial situations, according to a survey released on Monday by the New York Federal Reserve.

In its latest survey of consumer expectations, the regional Fed bank reported that respondents to its poll said inflation a year from now will likely stand at 3.5% compared to an expectation of 3.8% in June. The new reading is the lowest since April 2021. Expectations at the three- and five-year horizons both moderated to 2.9% from 3%, the New York Fed said.

The expected declines in future rates of inflation took place amid a moderation in price pressures in a number of key categories. The New York Fed said that in July the public predicted lower rates of inflation for gasoline, food, medical costs, college costs and rent, with that last measure ebbing to its lowest point since January 2021. Meanwhile, the expected rise in home prices moved to 2.8% in July from 2.9% in June.

The New York Fed released its report amid a cooling of key measures of inflation. The moderation has raised question as to whether the U.S. central bank will need to hike interest rates again after lifting its benchmark overnight target rate by a quarter of a percentage point to the 5.25%-5.50% range at a policy meeting last month.

The moderation in expected inflation is likely to be viewed as a positive for the outlook on price pressures, as policymakers view the predicted path of inflation as strongly influencing where it stands today.

The survey also found more positive tones regarding expectations over personal finance and the job market. The New York Fed said more respondents rated their personal financial situations positively and fewer viewed their situations negatively relative to a year ago. Those who expected their lot to be better a year from now rose to the highest level since September 2021.

The July report also found expectations about the outlook for the jobs market improved relative to June.

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