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Consumers See Lower Inflation Ahead Across All Horizons
One-Year Outlook Falls to 3.2% Amid Tariff Relief Deal
Consumers’ expectations for future price pressures improved across all horizons in May, and households’ pessimism about the labor market somewhat eased, according to monthly survey data released June 9 by the Federal Reserve Bank of New York.
Median expectations for inflation one, three and five years ahead all decreased in May. The decline was most significant in projections for year-ahead price growth, which dropped to 3.2% from 3.6% in April. Expectations for inflation three years ahead fell to 3% from 3.2%, and forecasts for five years ahead edged down to 2.6%.
The responses came as President Donald Trump struck a deal that significantly — though temporarily — lowered tariffs on imports from China. They also fell in line with other household-based surveys pointing to a rebound in sentiment in the wake of the announcement. Since the beginning of the year, consumers have been bracing for higher prices, and there is evidence businesses are beginning to do so, in part to make up for more expensive imports.
Fed officials are closely following consumer estimates of price pressures to assess whether tariffs could lead to a persistent inflation spike. Improvements in the readings were broad-based across all ages, education and income groups, the New York Fed added. Market-based measures remain consistent with the bank’s 2% goal for inflation.
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(Bloomberg)
The central bank is widely expected to hold interest rates steady at its June 17-18 gathering in Washington.
Jobs Improvement
Trump’s shifts on trade and immigration policy also are likely to affect the labor market. Several Fed officials expect higher unemployment this year.
Yet Americans’ views about their job prospects also improved slightly in May. The perceived probability of losing one’s job in the next year dropped 0.5 percentage point, while respondents’ likelihood of quitting voluntarily ticked up. The mean expectation that the unemployment rate will be higher one year from now decreased, though it still remained well above its 12-month average.
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(Bloomberg)
Households’ perceptions of their own finances also improved, with the share of respondents saying they will be worse off in a year declining slightly. A smaller share of participants reported that it was harder to access credit. The average perceived probability of missing a minimum payment in the next three months dropped to the lowest since January.
The mean perceived probability that the U.S. stock market will be higher 12 months from now increased.
