By Michael S. Derby
NEW YORK, Oct 7 (Reuters) - The public’s near-term expected path for inflation jumped in September to its highest level in over three years as households downgraded both their current and future financial outlooks, the Federal Reserve Bank of New York said on Wednesday.
Respondents to the bank’s latest Survey of Consumer Expectations said that they project inflation a year from now to hit 3.9%, the highest level since May 2023, from August’s forecast of 3.6%. Inflation three years
from now is seen at 3.3% versus 3.2% in August, while expected inflation five years from now held steady at 3%.
The deterioration in the inflation outlook came as households forecast future increases for all the categories the bank tracks: gas, food, rent, medical care and college costs.
The New York Fed report tracking the public’s souring mood lines up with other recent reports showing downbeat consumers in an economy that continues to suffer from high and persistent levels of inflation.
The report lands as pivotal midterm elections loom, with polls suggesting President Donald Trump and Republicans are in for a rough ride amid an ongoing affordability crisis in the US economy, which in large part is tied to their policy actions.
The main drivers of current outsized inflation gains are the ongoing impact of the president’s trade tariffs and the energy price surges caused by the war in the Middle East, coupled with pressure from the frenzied pace of investment in the tech sector, in the view of many Fed officials.
Faced with inflation that continues to outstrip the Fed’s 2% goal, officials last month raised their interest rate target by a quarter percentage point to between 3.75% and 4%. Officials also expect to raise rates again by year end, with investors eyeing the December Federal Open Market Committee meeting as the most likely time for action after several key officials last week said the central bank has time to weigh the data before acting again.
Minneapolis Fed leader Neel Kashkari said in an interview with Reuters last week that rough consumer confidence data is primarily a product of the state of price pressures.
“I still think it's inflation” that’s weighing on sentiment, Kashkari said. “Once we get inflation back down to 2% and people don't have to worry about it getting worse, then they can start to heal from what they've experienced over the last five years,” he said.
The New York Fed report found that households in September downgraded their views of their current and future finances, while also marking down their ability to access credit now. That said, households in September became less worried about missing a debt payment.
The September survey also found a somewhat positive arc for the public’s job market assessments. Relative to August, respondents lowered expectations the unemployment rate will be higher in a year. They also downgraded expectations of an involuntary job loss a year from now compared to August, while increasing their confidence they could find a job if they lost their current position.
The report also noted that households in September planned to increase future spending compared to August, for the highest reading since May 2023.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
