By Ryan O’Donnell and Mike O’Donnell
Inflation has been a hot topic in the United States, and the latest insights from a survey by the Federal Reserve Bank of New York reveal some interesting trends in consumer sentiment. In August, US consumers' inflation expectations remained relatively stable, but concerns about their financial well-being and job market pessimism increased.
In terms of inflation expectations, median one-year-ahead inflation expectations inched up slightly to 3.6% from 3.5% in July. Expectations for inflation at the three-year horizon dipped to 2.8% from 2.9%, and the outlook for inflation in five years saw a slight increase to 3.0% from 2.9%.
Financial concerns were also notable. Both current credit conditions and expectations about future conditions deteriorated. More households reported it was either "much harder" or "somewhat harder" to access credit compared to a year ago, reaching the highest level since the survey began in June 2013. Additionally, more people anticipated that it would become even more challenging to acquire credit in the coming year.
Regarding the job market, respondents expressed concerns. They believed it was increasingly likely that the unemployment rate would rise in the next year. The perceived odds of losing a job over the next year also saw a significant increase, reaching the highest reading since April 2021. On the flip side, the odds of changing jobs voluntarily over the next year rose, which could be interpreted as both a sign of labor market flexibility and uncertainty.
These trends were most pronounced among individuals with a high school education or less and annual incomes below $50,000.
The backdrop to these findings is the Federal Reserve's ongoing efforts to manage inflation. Over the past 18 months, Fed officials have raised interest rates significantly in an attempt to curb inflation and cool down the economy. However, as inflation appears to be moderating, the pace of rate increases is slowing. The Fed is widely expected to maintain its benchmark rate in the range of 5.25% to 5.5% in their upcoming meeting.
The goal for the Fed is to achieve a "soft landing" for the economy, avoiding excessive rate hikes while returning inflation to their 2% target. As we await an update on consumer prices, it's clear that policymakers are closely monitoring economic indicators to strike the right balance between managing inflation and supporting economic growth.
These insights provide valuable perspective on the complex dynamics at play in the US economy, where inflation and consumer sentiment continue to be closely watched by both policymakers and the general public.
