The Federal Reserve Bank of New York's latest Survey of Consumer Expectations, released Monday, shows a modest easing in Americans' short-term inflation concerns and an improvement in how households view job prospects in January.
Inflation expectations for the next year fell to 3.1% in January, down from 3.4% in December. Expectations further out - at three and five years - remained unchanged at 3.0%.
Respondents signaled a more favourable view of the labor market. The survey found households felt the probability of losing their jobs had declined and reported improved chances of securing new employment if they needed to. At the same time, households' earnings expectations rose relative to December, even as their projected income a year from now edged lower.
Despite the more upbeat hiring indicators, the survey also recorded a paradox: participants expected a higher unemployment rate a year from now than they had in the December reading.
Financial sentiment was mixed. Survey participants anticipated that credit would be harder to obtain in the future and revised down their assessments of both current and future personal financial situations compared with December.
Policymakers at the Federal Reserve are likely to view the drop in near-term inflation expectations as a reassuring sign while they continue to address remaining price pressures. The Fed trimmed its policy rate range by 75 basis points over the past year to a target range of 3.5% to 3.75% with the stated goal of supporting the labor market while keeping sufficient restraint to bring inflation down.
After holding rates steady in January, some Fed officials described the labor market environment as a "low-hire, low-fire" scenario and argued that lowering short-term credit costs would be necessary to avoid deeper problems in employment.
Officials also expect inflation to fall over the course of the year, citing, in part, anticipated reductions in tariff-related price pressures. Their outlook that inflation will return toward target levels is supported, they say, by the relative stability of longer-term inflation expectations shown in the survey.
Data limitations and tone - The survey captures households' expectations and perceptions at a point in time and reflects both improvements in some labor-market measures and lingering concerns about access to credit and personal finances.