December 25, 2024

People shop at a grocery store in Brooklyn, New York City on July 11, 2024.

Spencer Pratt | Getty Images

A report from the Federal Reserve Bank of New York on Monday showed the three-year outlook hit a new low, with consumer confidence growing in July and believing inflation will be less of a problem in the coming years.

The latest view from the monthly survey of consumer expectations shows that respondents think inflation will remain high next year but will fall back in subsequent years.

In fact, the three-year portion of the survey shows consumers expect inflation to be 2.3%, down 0.6 percentage points from June and the lowest level since the survey began in June 2013.

The results come as investors are nervous about the state of inflation and whether the Federal Reserve will be able to cut interest rates as early as next month. Economists view expectations as key to inflation because consumers and business owners will adjust their behavior if they think prices and labor costs are likely to continue to rise.

On Wednesday, the Labor Department will release its own monthly inflation data, the Consumer Price Index, which Dow Jones estimates is expected to rise 0.2% in July, or a 3% annual rate. That’s a full percentage point short of the Fed’s 2% target, but about a third of what it was two years ago.

The market has fully priced in the possibility of a rate cut of at least 25 percentage points in September and a full percentage point cut by the Federal Reserve before the end of the year.

While the medium-term outlook has improved, one-year and five-year inflation expectations remain unchanged at 3% and 2.8% respectively.

However, there is some other good news from the investigation.

Respondents expect natural gas prices to rise 3.5% next year, down 0.8 percentage points from June; food prices will rise 4.7%, down 0.1 percentage points from last month.

Additionally, household spending is expected to increase 4.9%, down 0.2 percentage points from June and the lowest reading since April 2021, just as the current inflation surge began.

Instead, expectations for health care, college education and rent costs rose. The outlook for college costs jumped to 7.2%, up 1.9 percentage points, while the rent component – which is particularly vexing to Fed officials who have been looking for lower housing costs – is expected to rise 7.1%, or 0.6 percentage points. One percentage point.

Employment expectations improved despite rising unemployment. The perceived probability of unemployment next year fell to 14.3%, down half a percentage point, while expectations of voluntary separation, a proxy for workers’ confidence in labor market opportunities, rose to 20.7%, an increase of 0.2 percentage points. The top reading increased by one percentage point.

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