Americans’ Inflation Expectations Hit Record High: New York Fed

People walk wearing masks outside the Federal Reserve Bank of New York in New York on March 18, 2020. Lucas Jackson/Reuters

Americans’ short-term inflation expectations have reached a new high, according to the latest data from the June 2022 Survey of Consumer Expectations by the Federal Reserve Bank of New York.

“Median one-year-ahead inflation expectations increased to 6.8 percent, from 6.6 percent in May, marking a new series high,” the Fed said on July 11, detailing the survey results. “In contrast, median three-year ahead inflation expectations decreased to 3.6 percent from 3.9 percent. The increase in short-term expectations was driven by respondents over age 60 and respondents with at least some college education. The decline in medium-term expectations was broad-based across education and income groups.”

Expectations about year-ahead gas price changes rose by 0.1 percentage point to 5.6 percent. Rent price expectations increased to 10.3 percent, college education to 8.7 percent, and medical care to 9.5 percent.

For food, year-ahead price expectations dropped 0.1 percentage point to 9.2 percent. For home prices, expectations dropped significantly from 5.8 to 4.4 percent, the lowest reading since February 2021.

Median inflation uncertainty, or the uncertainty expressed regarding future inflation outcomes, went up to a series high in the one-year ahead expectations.

According to the Monmouth University poll released on July 5, the number of Americans who are financially struggling has risen by double digits during the past year amidst soaring prices.

“Economic concerns tend to rise to the top of the list of family concerns, as you might expect, but the singular impact of inflation is really hitting home right now,” Patrick Murray, director of the independent Monmouth University Polling Institute, said in a statement. “Most Americans are blaming Washington for their current pain.”

Fed Action and Impending Recession

The New York Fed’s press release comes as the U.S. Bureau of Labor Statistics is scheduled to release inflation data for June this week. Inflation numbers in the first five months have not been encouraging.

In January, inflation came in at 7.5 percent, February at 7.9 percent, March at 8.5 percent, April at 8.3 percent, and May at 8.6 percent—a four-decade high.

If the June inflation numbers also come in at elevated levels, the U.S. Federal Reserve might take more drastic action.

Speaking to reporters during a press conference, U.S. Fed Chair Jerome Powell admitted that the central bank’s decision to raise interest rates by 75 basis points last month was due to “what we saw in inflation expectations.”

“We’re absolutely determined to keep them anchored at 2 percent. That was one of the reasons—the other was just the CPI reading,” Powell told reporters at a press briefing, Fox Business reported.

Economists at Nomura Holdings have warned about the possibility of a mild recession in the United States by the end of this year as the Fed raises rates to rein in inflation.