The New York Federal Reserve's latest Survey of Consumer Expectations, released Tuesday, indicates that households in the United States maintained their near- and medium-term inflation outlooks in August, even as concerns about employment and personal finances increased.
Survey respondents kept their one-year inflation projection at 3.6% and their five-year projection at 3.0%, both unchanged from July. Expectations looking three years ahead eased modestly, slipping to 3.2% from 3.3% the prior month. Participants in the survey also anticipated higher gasoline prices over the coming year.
Alongside steady inflation expectations, the survey registered a notable deterioration in consumers' views on the labor market. Respondents' expectations for the unemployment rate one year from now climbed to the highest level recorded since April 2020, when the COVID-19 pandemic first disrupted the economy. This rise in expected unemployment was evident across age groups, income levels and education categories.
Despite the higher projected unemployment rate, the perceived chance of losing one’s job in August declined relative to July. At the same time, respondents reported a lower probability of finding a new job following an involuntary separation than they had in the July survey.
Household assessments of their current and expected future financial situations slipped in August. Consumers also registered weaker views on access to credit both at present and looking one year ahead.
The timing of the report is significant: it appears in the run-up to the Federal Reserve's two-day policy meeting on September 15-16. The central bank's target for its benchmark overnight interest rate currently sits at 3.50% to 3.75%, while inflation remains above the Fed's 2% objective.
The August Consumer Price Index, due for release on Friday, is likely to be a primary input into the Fed's decision-making. In related remarks last Thursday at a Reuters NEXT Newsmaker event, Federal Reserve Governor Christopher Waller said, "if there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level."
Context and implications
The survey paints a mixed picture: while inflation expectations have not moved higher in the short and medium term, rising unemployment expectations and deteriorating household finances highlight vulnerabilities that could feed into consumer behavior and credit demand. Policymakers will consider these signals alongside incoming CPI data as they weigh the path for interest rates.