U.S. consumers’ inflation expectations remained mostly unchanged in August, but concerns about employment conditions and personal finances increased, according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York.
The survey showed that consumers continued to expect inflation of 3.6% over the next year and 3% over the next five years. Expectations for inflation three years ahead slightly declined to 3.2% in August, compared with 3.3% in July.
Consumers also predicted higher gasoline prices over the next year, reflecting continued concerns about energy costs and broader price pressures.
Consumers grow more concerned about the labor market
While inflation expectations remained relatively stable, Americans became more pessimistic about employment conditions and their personal finances.
Survey participants increased their expectations for where the unemployment rate will stand one year from now to the highest level since April 2020, when the economy was severely affected by the COVID-19 pandemic.
The increase in unemployment concerns was widespread across different age groups, income levels, and education backgrounds.
However, consumers reported a lower likelihood of losing their jobs compared with July. At the same time, expectations of finding new employment after an involuntary job loss also declined.
Respondents also downgraded their views of their current and future financial situations, along with their expectations regarding access to credit both today and in the coming year.
Federal Reserve faces key inflation decision
The New York Fed report comes shortly before the Federal Reserve’s September policy meeting, where officials will decide whether to adjust interest rates.
The Fed’s benchmark overnight interest rate currently sits between 3.50% and 3.75%, while policymakers continue to monitor inflation that remains above the central bank’s 2% target.
A major factor influencing the September 15-16 meeting will be the release of August Consumer Price Index data. Several Fed officials have indicated that the inflation report could play an important role in determining the next policy move.
Fed officials divided over future rate policy
Fed Governor Christopher Waller recently indicated that continued progress toward the central bank’s 2% inflation goal could support keeping interest rates unchanged.
However, other policymakers remain open to additional rate increases.
Cleveland Fed President Beth Hammack, who supported a rate hike at the Fed’s July meeting, said inflation pressures affecting consumers in her region suggest that further action may be needed to reduce price growth.
Her comments indicate that some Fed officials continue to favor tighter monetary policy despite signs of weakening consumer confidence and rising labor market concerns.
