Consumer Inflation Expectations Tick Higher at Short and Long Horizons, NY Fed Survey Shows — Evening Brief – 08.07.25 

U.S. consumers slightly raised their inflation expectations in July at both the one-year and five-year outlooks, according to the Federal Reserve Bank of New York’s latest Survey of Consumer Expectations (SCE). The median one-year-ahead inflation expectation rose to 3.1%, up from 3.0% in June, while five-year-ahead expectations increased to 2.9% from 2.6% — a notable jump that signals longer-term concerns about price stability. Importantly, three-year-ahead expectations remained unchanged at 3.0%, suggesting that the perceived inflation trend may still be viewed as temporary by some households. 

The rise in five-year inflation expectations is especially significant for Federal Reserve policymakers, as it may reflect incipient risks to inflation anchoring — a key concern for central banks attempting to maintain credibility in price targeting. That said, expectations remain below peak levels observed in 2022 and early 2023, when inflation surged in the aftermath of the pandemic. 

Despite creeping inflation expectations, consumers reported an improving outlook on personal financial conditions. Fewer respondents indicated that they are worse off than a year ago, and expectations about household finances a year ahead also improved. This shift in sentiment may reflect real wage gains, a cooling in food and energy prices, or optimism surrounding potential interest rate cuts. 

However, some financial stress indicators persisted. The average perceived probability of missing a minimum debt payment in the next three months ticked up by 0.3 percentage point to 12.3%, although it remains below the 12-month trailing average of 13.6%. This figure reflects a stable but cautiously leveraged consumer, still sensitive to borrowing costs. 

The survey revealed mixed views on credit access. Perceptions of current credit conditions slightly deteriorated versus a year ago, but expectations for future credit availability improved — potentially driven by the belief that Fed rate cuts could ease lending conditions. 

Labor market expectations were equally nuanced. The mean perceived probability of losing one’s job over the next 12 months rose to 14.4%, up from 14.0% and above the recent 12-month average of 13.9%. Yet, the probability of voluntarily quitting a job also increased slightly to 19.0%, indicating a steady level of labor market confidence among employed individuals. 

In a particularly optimistic sign, unemployment expectations — defined as the mean probability that the U.S. jobless rate will rise over the next year — fell to 37.4%, down 2.3 percentage points from June and the lowest since January 2025. This suggests consumer confidence in broader labor market stability, even if individual concerns about job loss are creeping upward.