Monthly survey data released by the Federal Reserve Bank of New York on Monday indicated that in May, consumers’ expectations for future price pressures improved across the board, and households’ pessimism about the labor market eased somewhat.
In May, the median inflation forecasts for the next year, three years, and five years all declined. The most significant drop was in the one-year inflation rate forecast, which fell from 3.6% in April to 3.2%. The three-year inflation rate expectation dropped from 3.2% to 3.0%, and the five-year inflation rate expectation slightly decreased to 2.6%.
Other household survey results also showed that consumer confidence rebounded following the announcement of the agreement. Since the beginning of the year, consumers have been preparing for price hikes, and there are indications that businesses have started to do so as well, partly to compensate for the increase in import costs.
Federal Reserve officials closely monitor consumers’ expectations of price pressures to assess whether tariffs could lead to a sustained increase in inflation. The Federal Reserve Bank of New York also noted that expectations for people of all ages, educational levels, and income groups have generally improved. Meanwhile, market-based indicators remain in line with the Federal Reserve’s 2% inflation target.
The market widely expects that the Federal Reserve will keep interest rates unchanged at the meeting to be held in Washington on June 17-18.
Employment Improvement
Trump’s adjustments in trade and immigration policies may also affect the labor market. Several Federal Reserve officials expect the unemployment rate to rise this year.
Nevertheless, the American public’s perception of the employment outlook improved slightly in May. Respondents’ expectations for the probability of unemployment in the coming year decreased by 0.5 percentage points, while the probability of voluntary resignation increased. The average expectation that the unemployment rate will rise in a year has declined, but it is still much higher than the 12-month average.
Families’ views on their own financial situation have also improved, and the proportion of respondents who believe that their financial situation will deteriorate in a year has slightly decreased. The average expected probability of being unable to make the minimum repayment in the next three months has dropped to the lowest level since January.
The average expectation for the probability of an increase in the US market in the next 12 months has risen.
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