NY Fed or University of Michigan: Which Is Right? — Evening Brief – 04.14.25
In a subtle yet telling shift, U.S. consumers have boosted their short-term inflation forecasts while dialing back their long-term outlook, according to the Federal Reserve Bank of New York’s March Survey of Consumer Expectations. Short-term expectations, looking one year ahead, rose by 0.5 percentage points to 3.6%. Meanwhile, three-year expectations held steady at 3.0%, and five-year projections dipped slightly by 0.1 percentage points to 2.9%.
This mixed signal rippled through financial markets, pushing government bond yields down from their peaks to session lows. The NY Fed’s findings stand in sharp contrast to the University of Michigan’s recent consumer survey, which reported a striking jump in year-ahead inflation expectations to 6.7%—up from 5.0% and the highest since 1981—following four straight months of significant increases. Long-run expectations in that survey also climbed, reaching 4.4% from 4.1%. For the Federal Reserve, the NY Fed’s modest decline in five-year inflation expectations offers a measure of comfort, reinforcing their view that long-term inflation remains “well-anchored.”
However, the survey heightened fears of an economic slowdown or recession. Expectations for unemployment, job loss, and earnings growth worsened, and household income growth optimism declined. Pessimism grew about year-ahead financial situations, credit access, and stock prices, which hit their lowest level since June 2022.
Median expected price increases rose 0.1 point to 5.2% for food (highest since May 2024), 0.7 points to 7.9% for medical care, and 0.5 points to 7.2% for rent. Home price growth expectations fell 0.3 points to 3.0%.
In labor markets, median earnings growth expectations dropped 0.2 points to 2.8%, matching its 12-month average. The mean probability of higher unemployment in a year surged 4.6 points to 44.0%, the highest since April 2020. Job loss concerns also rose, with the mean perceived chance of losing a job in the next 12 months up 1.6 points to 15.7%, the highest since March 2024.
Median household income growth expectations fell 0.3 points to 2.8%, below the 12-month average of 3.0%. Median household spending growth expectations slipped 0.1 point to 4.9%. Perceptions and expectations of credit access deteriorated, and 30.0% of households expect a worse financial situation in a year, the highest since October 2023.