Americans entered the new year with somewhat less anxiety about short-term inflation and a brighter outlook on hiring, according to the Federal Reserve Bank of New York's latest Survey of Consumer Expectations. The survey, released in January, found that households lowered their forecast for inflation one year ahead while keeping longer-horizon expectations steady.
Inflation expectations moved down in the near term
Respondents' one-year-ahead inflation expectation fell to 3.1% in January from 3.4% in December. By contrast, expectations at the three- and five-year horizons held unchanged at 3.0% in January, indicating stability in longer-run inflation beliefs among households.
Hiring outlooks improved, but some measures remain cautious
The survey showed an easing of recent pessimism about the labor market. Households reported a reduced perceived probability of losing their job and said they would find it easier to secure employment if they were to become unemployed. At the same time, the collective view of where the unemployment rate will sit a year from now shifted upward relative to December, with households expecting a higher unemployment rate a year hence than they did the prior month.
On income, respondents signaled mixed signals: they reported higher expectations for earnings in January compared with December, yet the expected level of overall income one year from now dipped slightly versus the prior month.
Financial conditions and personal finances show strain
Despite the softer near-term inflation outlook and some improved hiring sentiment, households expressed concerns about access to credit and the state of their finances. Survey participants saw credit as becoming harder to obtain in the future, and they downgraded assessments of both their current financial situation and their expected financial position relative to December.
What this means for policymakers
Federal Reserve officials are likely to view the decline in near-term expected inflation favorably as they balance support for a cooling job market with the aim of reducing price pressures. Last year the central bank lowered its target interest rate range by 75 basis points to between 3.5% and 3.75% to buttress a weakening labor market while still exerting restraint on the economy to help bring down inflation. In January the Fed held rates steady, although some officials favored a rate cut.
Officials have characterized labor conditions as a low-hire, low-fire environment, and some policymakers have argued that easing the cost of short-term credit may be necessary to prevent deeper stress in the hiring sector.
Fed officials also project that inflation will decline over the course of the year in part because tariff pressures are expected to subside. Their confidence that inflation will return toward target rests in part on the stability of longer-run inflation expectations among the public. Federal Reserve Vice Chair Philip Jefferson said on Friday that data indicate "the American people believe that we are committed to bringing inflation down to our target," adding that "my view is that we are still perceived of as being credible now with respect to the current situation with inflation being above target," and that inflation pressures are expected to ease over time.
Overall, the New York Fed's January survey paints a nuanced picture: households appear less worried about immediate inflation and somewhat more optimistic about hiring prospects, but remain wary about credit access and foresee a higher unemployment rate over the next year while signaling somewhat weaker expectations for future income levels.