A recent survey conducted by the New York Federal Reserve revealed that Americans' short-term inflation expectations have slightly diminished, while their long-term inflation outlook has risen. Additionally, their optimism regarding the stock market has reached a three-year peak.
The Federal Reserve Bank of New York's May Survey of Consumer Expectations indicated a decrease in one-year-ahead inflation expectations, now at 3.2 percent, down from 3.3 percent in April. In contrast, the forecast for inflation three years from now remained steady at 2.8 percent, whereas the five-year horizon projection climbed to 3.0 percent from 2.8 percent.
Households' financial outlook for the next 12 months is notably positive, with 78.1 percent of respondents expecting to be in an equal or better financial position within a year, marking the highest sentiment since June 2021. The probability that U.S. stock prices will increase in the coming year surged to 40.5 percent, the highest level since May 2021.
Expectations for home price increases over the next year held steady at 3.3 percent in May. Similarly, anticipated food price growth remained at 5.3 percent, and gas price forecasts stayed consistent at 4.8 percent.
Healthcare cost projections for the next year edged up to 9.1 percent from 8.7 percent, while expectations for college education costs decreased to 8.4 percent from 9.0 percent. Anticipated rent growth remained unchanged at 9.1 percent.
The forecast for one-year-ahead earnings growth stayed constant at 2.7 percent, while the perceived probability of a higher U.S. unemployment rate one year from now rose to 38.6 percent from 37.2 percent.
The Federal Reserve is scheduled to announce its latest interest rate decision on Wednesday. The Federal Open Market Committee (FOMC), chaired by Jerome Powell, is broadly expected to maintain the benchmark interest rate at 5.50 percent.
Despite stronger-than-anticipated growth in payroll employment and rising average earnings reflected in last Friday's jobs report, expectations for a rate cut in September have diminished. The robust labor market and wage growth are likely to prompt policymakers to adopt a cautious stance on policy easing. Nevertheless, economists still anticipate at least one interest rate cut within the year.
