US Consumers Doubt Inflation Will Be Defeated in Year Ahead: New York Fed Data

A customer shops for food at a grocery store in San Rafael, Calif., on March 12, 2024. Justin Sullivan/Getty Images

U.S. consumer expectations for inflation and housing costs rose in April as Americans have become increasingly skeptical that public policymakers will vanquish inflationary pressures from the economy and return to the Federal Reserve’s 2 percent target.

According to the New York Fed’s Survey of Consumer Expectations (SCE), one-year inflation expectations climbed to 3.3 percent, the highest reading since November. The one-year outlook hovered at 3 percent for four consecutive months.

Median three-year-ahead inflation expectations tumbled from 2.9 percent to 2.8 percent, while the median five-year horizon jumped from 2.6 percent to 2.9 percent.

Year-ahead commodity price projections were up across the board, led by college education (2.5 percent), medical care (0.6 percent), and rent (0.4 percent). Expectations that gas and food prices will rise over the next 12 months also jumped 0.3 percent and 0.2 percent, respectively.

The New York Fed’s SCE data mirrored the University of Michigan’s latest Consumer Sentiment Index results, showing year-ahead inflation expectations rising to a six-month high of 3.5 percent in April.

The regional central bank’s figures showed that households have become slightly more skeptical about their finances, the labor market, and housing prices.

Median one-year-ahead expected earnings growth dipped by 0.1 percentage point to 2.7 percent, and expectations that the unemployment rate will be higher one year from now rose by 1 percentage point to 37.2 percent.

A weaker assessment of the jobs arena was also reflected in The Conference Board’s recent Consumer Confidence Index, which revealed “fewer consumers saying that jobs are plentiful and more reporting jobs are hard to get.”

In addition, median household income growth expectations slid by 0.1 percentage points to 3 percent, while median household spending growth expectations rose by 0.2 percentage points to 5.2 percent.

Last month, median home price growth expectations advanced to 3.3 percent after remaining flat at 3 percent for seven straight months. This was the highest reading since July 2022.

New York Fed researchers noted that “the increase was most pronounced for respondents with a high school degree or less.”

According to Redfin, the median monthly housing payment spiked to a record high of $2,894 for the four weeks ending May 5. This is up 14 percent from the same time a year ago.

Home prices have rocketed over the last four years. Since the first quarter of 2020, the median sales price of a home has risen about 28 percent to $420,800.

While rents have eased in recent months, they have risen 1.5 times faster than wages over the last four years, a new analysis by Zillow Group highlighted.

A home stands for sale in a Brooklyn neighborhood with a limited supply of single-family homes in New York on March 31, 2021. Spencer Platt/Getty Images

Monetary authorities and economists have anticipated lower shelter costs for more than a year. However, housing inflation persists, as the shelter index in the March consumer price index (CPI) report rose 0.4 percent monthly and was up 5.7 percent year-over-year.

Fed Chair Jerome Powell told reporters at this month’s post-meeting press conference that he is “confident” that lower rents are “going to show up in measured inflation” but stopped short of the exact timing, citing lags in the data.

Household finances have ostensibly weakened, too, as the rate of consumers expected to miss a minimum debt payment over the next three months is at a four-year high.

Delinquency rates for all debt types, from credit cards to auto loans, have shot up over the last year.

In the end, the New York Fed statistics are “more evidence no one believes [the] Fed will get control of inflation,” says E.J. Antoni, a Heritage Foundation economist.

“People believe they'll keep getting poorer,” Mr. Antoni added on X (formerly Twitter), referencing lower median expected earnings growth.

Count on Sticky Inflation, High Rates: Strategist

Various gauges report an economy enduring sticky and stubborn inflation.

Last month, the Atlanta Fed’s sticky-price CPI tracker—a weighted basket of items that change price relatively slowly—climbed to 5 percent, up from 4 percent in the previous month.

The next CPI report is expected to show the annual inflation rate unchanged at 3.5 percent and then tick up to 3.6 percent next month, according to the Cleveland Fed’s Inflation Nowcast.

These trends have spooked monetary policymakers, who are questioning whether interest rates are high enough to restore price stability.

While Mr. Powell reassured the financial markets that the next policy move will unlikely be a rate hike, several Fed officials have asserted that a rate increase is not off the table.

In a talk at the Milken Institute 2024 Global Conference on May 7, Minneapolis Fed President Neel Kashkari conceded that he could not rule out a rate hike and would support a boost if inflation persisted.

“The bar to raising is quite high, but it is not infinite,” Mr. Kashkari noted, though he thinks the most likely situation will be higher-for-longer rates.

Fed Gov. Michelle Bowman told Bloomberg News on May 10 that she does not envision rate cuts this year. Last month, she also kept a rate hike on the table.

“While it is not my baseline outlook, I continue to see the risk that at a future meeting, we may need to increase the policy rate further should progress on inflation stall or even reverse,” said Ms. Bowman at an April 5 Manhattan Institute event.

Investors are penciling in two quarter-point rate cuts this year beginning in September, according to the CME Fed Watch Tool.

RBC economist Claire Fan believes the first cut to the benchmark federal funds rate will be in December “contingent on both growth and inflation gradually and persistently slowing.”

“The Fed’s still hopeful that inflation can cool even if the economy doesn’t,” Ms. Fan wrote in a note. “But we think persistent unwinding in price pressures won’t come without some slowing in the economy.”

Interest rates are in the range between 5.25 percent and 5.5 percent, the highest level in 23 years.