U.S. Inflation Expectations Edge Higher as Labor Market Confidence Weakens, NY Fed Survey Shows — Evening Brief – 10.07.25
U.S. consumers lifted their short- and medium-term inflation expectations in September while showing signs of waning confidence in the labor market, according to the Federal Reserve Bank of New York’s latest Survey of Consumer Expectations, released Tuesday. The findings suggest inflation concerns are re-emerging even as hiring momentum cools—a combination that may complicate the Fed’s policy path into late 2025.
The median one-year-ahead inflation expectation rose to 3.4%, up from 3.2% in August, while three-year expectations ticked higher to 3.0% from 2.9%. Longer-term five-year inflation expectations remained steady at 3.0%, reinforcing the view that consumers continue to see inflation above the Fed’s 2% target for the foreseeable future.
At the same time, labor market sentiment softened noticeably. Consumers’ median year-ahead earnings growth expectations fell to 2.4%, the lowest reading since April 2021, reflecting fading optimism about wage growth amid a cooling economy. The mean perceived probability of unemployment rising over the next 12 months climbed 2.0 percentage points to 41.1%, while the chance of losing one’s job advanced to 14.9%, above its 12-month average of 14.1%.
In a further sign of caution, fewer respondents expect to leave their job voluntarily, with the probability of switching jobs rising modestly to 20.7%, suggesting workers see fewer external opportunities.
Still, consumer financial resilience showed some bright spots. The average probability of missing a minimum debt payment declined to 12.6%, below the 12-month average of 13.5%, and respondents expressed slightly greater optimism about credit access, with more expecting it to be easier to obtain loans in the year ahead.
However, spending intentions softened. The survey’s measure of expected household spending growth fell to 4.7% in September, down 0.3 percentage points from the prior month and below the 12-month average of 4.9%, hinting that consumers may be tightening their budgets as borrowing costs remain elevated.
The survey was conducted in September.