Latest New York Fed Survey: Americans Brace for High Inflation Sticking Around 

Americans are bracing for high inflation to stick around for at least the next few years, according to a key survey published Tuesday by the Federal Reserve Bank of New York. 

According to the New York Federal Reserve’s Survey of Consumer Expectations, the median expectation is that the inflation rate will be up 3.7% a year from now, down from a June 2022 record high of 7.1%. That marks a slight increase from the 3.6% recorded last month. 

Consumers also anticipate that in the coming years, inflation will remain high, and it is estimated that it will hover around 3% three years from now — up from August’s 2.8% —and will then fall slightly to 2.8% five years from now, according to the reserve’s survey.

The level remains above the Fed’s 2% target and indicates that stubborn inflation could be here to stay. In comparison, central bank policymakers projected their latest economic forecasts that inflation will fall in 2025 by 2.2% and eventually settle near 2% in 2026.

Americans expect the cost of food to continue to rise over the coming year. However, they predicted the price of necessities like medical care, gas, and rent would continue to fall in the year ahead.

Survey is critical in determining how Fed policymakers respond to the inflation crisis

The survey is based on a rotating panel of 1,300 households and is critical in determining how policymakers in the Fed respond to the inflation crisis.

It is because actual inflation is dependent, at least partly, on what consumers think it will be. If everyone believes prices will rise by 3% in the year, it signals to businesses they can increase prices by a minimum of 3%. Workers will want a 3% pay raise to offset rising costs. It ends up as a self-fulfilling prophecy.

Fed Chairman Jerome Powell has repeatedly emphasized that policymakers are committed to pulling inflation back to the Fed’s 2% target goal. 

“A strong majority of committee participants expect that it will be appropriate to raise interest rates two more more by the end of the year,” said Powell recently, referring to the Federal Open Market Committee. “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”

Policymakers have raised the benchmark federal funds rate 11 times over 16 months to the highest level since 2001. During the most recent meeting in September, they paused the tightening campaign to assess the impact of higher rates on the economy; however, they left the door open to another rate increase this year.

The New York Fed survey highlighted increasing concerns about household finances and the labor market.

The mean perceived probability of job loss in the next year jumped by 2 percent to 13.8%, the highest reading since April 2021. Mean unemployment expectations — or the possibility that unemployment in the U.S. will be higher a year from now — climbed 1.8 percent to 48.5% in August.

Simultaneously, households were more pessimistic about their ability to access credit and financial situation.

The median expected household income growth increased by 0.1 percentage points to 3% in September.

However, perceptions of access to credit compared with the same period last year deteriorated, and the share of households that reported it is harder to obtain credit hit a new high.

“The share of households reporting that it is more difficult to obtain credit now than a year ago increased, while the share reporting that it is easier declined,” said the report.