Near-Term Inflation Expectations Tumble to 2-Year Low as Economic Outlook Worsens: NY Fed
The comments below are an edited and abridged synopsis of an article by Tyler Durden
If Fed Chair Jay Powell is pondering a June rate pause, the latest monthly data released by the NY Fed Consumer Survey should help.
Near-term inflation expectations dropped to 4.07% in May from the previous month’s 4.45%, the lowest reading since May 2021. This drop was offset by a modest increase in inflation expectations at both the 3-year-ahead horizon (2.98% from 2.89%) and the 5-year-ahead horizon (2.72% from 2.64%).
Expectations for earnings growth one year ahead fell for the first time in five months, to 2.8% from 3%. The drop was larger among respondents who had only a high school education, although it may be those who have an overpriced college degree that are most at risk.
A larger share of households said their finances are worse now than a year ago. The outlook also deteriorated, with fewer respondents saying they expect to be better off a year from now, while those expecting to be ‘somewhat’ or ‘much’ worse off jumped to 23% and 7.2%.
More consumers said it was harder to access credit now compared to a year ago. More households said they expect to see tighter credit conditions in one year.
Median home price growth expectations increased to 2.64% from 2.52%, the highest since July 2022 despite mortgage rates around 7%; the increase was most pronounced among respondents with household income over $100k.
Optimism was muted regarding 1-year-ahead expected earnings, where the median expected growth fell to 2.8% from 2.96%. A larger percentage of consumers, 11.32% vs 10.60% in the prior month, expect to be unable to make minimum debt payment over the next three months.
Over the next year consumers expect gas prices to rise 5.07%; food prices to rise 5.39%; medical costs to rise 9.18%; rent to rise 9.13%, and a college education to rise 7.12%.
Finally, the percentage of respondents who expect a higher stock market one year from now is just shy of the lowest level in the past ten years.