The New York Fed survey shows that Americans see inflation slowing further over the next year

Consumers see inflation falling significantly over the next year to the lowest level since July 2021, according to a key New York Federal Reserve survey published Monday, a potentially reassuring signal for the US central bank as it tries to calm soaring prices.

The average expectation is that Inflation rate It will rise 5% one year from now, according to the New York Federal Reserve’s survey of consumer expectations. Americans are less certain about the prospect of lower inflation in the long run.

Three years from now, consumers will see inflation hovering around 3%, unchanged from November. Over the next five years, Americans expect prices to remain above the Fed’s 2% target, and inflation is expected to hover around 2.4% in 2028.

The survey said that “the mean inflation uncertainty — or expressed uncertainty about future inflation outcomes — has been unchanged over the short-term horizon and decreased over the medium-term horizon.”

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Grocery shopping

Shoppers at a Kroger supermarket on October 14, 2022 in Atlanta, Georgia. (Elija Novelaj/AFP via Getty Images) / Getty Images)

The decline stemmed from a significant drop in expectations for the cost of food and gas, with Americans forecasting a 0.7% decline over the next year for both categories. However, consumers are bracing for home prices to rise 0.3% to 1.3% this year.

The report is based on a rotating panel of 1,300 households.

Survey plays an important role in determining how to do this Federal Reserve policymakers respond to inflation calamity. This is because actual inflation depends, at least in part, on what consumers think. It’s a self-fulfilling prophecy – if everyone expects prices to rise 3% in a year, that indicates companies that can increase prices by at least 3%. The workers, in turn, will want a 3% wage increase to offset the higher costs.

Chairman Jerome Powell has repeatedly warned that central bankers are alert to signs of rising inflation expectations, a sign that higher consumer prices may take hold in the economy.

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Federal Reserve Chairman Jerome Powell

Jerome Powell, Chairman of the US Federal Reserve, arrives to speak during a press conference following the meeting of the Federal Open Market Committee (FOMC) in Washington, D.C., on September 21, 2022. (Photographer: Sarah Silbiger/Bloomberg via Getty Images/Getty Images)

“I think that through the actions that we’re taking, we’re helping to keep long-term inflation expectations steady and getting the public to believe in 2% inflation through the things we’re doing, even during times when energy is part of the inflation story,” Powell told reporters at the press conference. beginning of November next.

Policymakers voted to approve seven consecutive rate hikes last year, which lifted the federal funds rate to a range of 4.25% to 4.5% — the highest level since 2007 — and indicated that more rate hikes are coming in 2023. There are expectations Growing numbers on Wall Street say the Fed will cause an economic downturn as it raises interest rates at the fastest pace in three decades to keep up with hyperinflation.

In a worrying development, Monday’s survey showed household spending expectations fell sharply in December to 5.9% from 6.9% the previous month. The decline was widespread across age and income groups. Although more Americans predicted they would slow down their spending in 2023, perceptions about household finances remained intact.

Federal Reserve

Marriner S. Eccles Federal Reserve Building in Washington, D.C., United States, on Wednesday, July 6, 2022. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)

The percentage of households reporting a worse situation year-on-year decreased in December. Similarly, next year’s forecasts for household financial conditions also improved in the past month.

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The new inflation forecast comes just days before the release of new CPI data, which is expected to show further moderation in inflation: Economists surveyed by Refinitiv expect inflation was flat in December on a month-over-month basis and rose 6.6% from the year. Previous.

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