Consumer Inflation Expectations Remain Above Fed’s 2% Target

Consumers’ inflation expectations changed little in July and remained above the Federal Reserve’s 2% target, while views on household finances improved modestly, according to the New York Fed’s Survey of Consumer Expectations.

Median inflation expectations one year ahead declined 0.1 percentage point to 3.6%. Expectations at the three- and five-year horizons held steady at 3.3% and 3%, respectively.

Consumers reported less uncertainty about inflation over the one- and five-year periods, while uncertainty at the three-year horizon was unchanged.

Fed policymakers monitor inflation expectations because they can influence wage demands, spending decisions and businesses’ pricing behavior. Persistently elevated expectations could make officials more inclined to maintain or raise interest rates to restrain demand.

Labor-market views were mixed. The mean perceived probability of losing a job edged up 0.1 percentage point to 14.2%, below the 12-month average of 14.5%.

The perceived probability that the U.S. unemployment rate will rise over the next year increased 1.1 percentage points to 42.8%. However, confidence in finding another job improved, with the perceived probability of securing employment after a job loss rising 1.3 points to 46.2%.

Expected household income growth remained at 3%. The median outlook for spending growth declined 0.1 point to 4.9%, slightly below its 12-month average of 5%.

Consumers expressed greater concern about meeting debt obligations. The perceived probability of missing a minimum debt payment during the next three months rose 1.2 percentage points to 12%, though it remained below the 12-month average of 12.7%.