S-T Inflation Expectations Dip: NY Fed — Evening Brief – 07.09.24

One-year inflation expectations fell for the second month in a row, to 3.02% in June from 3.17% the previous month and 3.26% in April, according to the New York Fed’s survey of consumer expectations.

At the same time, three-year inflation expectations increased moderately to 2.93% from 2.76%, the highest level since last November. Median five-year inflation expectations fell to 2.83% from a one-year high of 3% in May.

There was disagreement across respondents as the difference between the 75th and 25th percentile of inflation expectations remained unchanged at the one-year horizon, declined at the three-year horizon, and rose at the five-year horizon. The median inflation uncertainty fell at the one- and three-year timeframes but increased at the five-year horizon.

The survey confirms other recent data indicating that inflation has slowed in recent months after being stickier than predicted in the first quarter of this year. The June CPI (published Thursday) is expected to indicate that the core gained 0.2% for the second consecutive month, which would be the smallest back-to-back advance since August, closer to what Federal Reserve policymakers prefer to see.

Meanwhile, median home price growth expectations fell to 3.0% from 3.3%, matching the series’ 12-month trailing average. More significantly, median year-ahead expected price changes for all goods in the survey decreased: by 0.5% for gas to 4.3%, 0.5% for food to 4.8%, 1.7% for the cost of medical care to 7.4%, 2.6% for rent to 6.5%, and 3.1% for the cost of a college education to 5.3% (the series’ lowest level since December 2020).

In the labor market, median one-year projected earnings growth unexpectedly jumped to 3.0%, “the measure’s highest reading since September 2023,” despite wage growth continuing to fall. Mean unemployment expectations, or the possibility that the U.S. unemployment rate would be higher one year from now, fell by one percentage point to 37.6% in June, barely below the series’ 12-month trailing average of 37.7%.

Looking at expectations about household finance, the median expected growth in household income declined 0.1 percentage point to 3.0% in June. Since January 2023, the series has moved within a narrow band of 2.9% to 3.3%, remaining above the 2.7% pre-pandemic level set in February 2020.

Perceptions of credit access have deteriorated slightly in comparison to a year ago, with a smaller number of respondents stating that it is simpler to obtain credit now than it was 12 months ago. Consumers were slightly more divided regarding future credit availability, with a bigger share expecting tighter credit conditions one year from now and a larger share expecting looser credit conditions.

Perceptions of households’ present financial status decreased marginally, with more respondents reporting being worse off than a year ago and fewer responding to being better off. Expectations for households’ year-ahead financial conditions were less evenly distributed, with fewer respondents expecting to be better off a year from now and fewer expecting to be worse off.

Finally, while earnings optimism may be completely unfounded, consumers were slightly more optimistic about where equities – which are hitting new all-time highs every day – will go next. The mean perceived probability that U.S. stock prices will rise in the next 12 months fell by 1.3 percentage points, to 39.2%.