US inflation expectations jump for first time in months, New York Fed survey shows

Americans are bracing for higher inflation over the next few years, even as they worry about a possible credit crunch following a series of bank failures, according to a key survey by the New Federal Reserve. York released Monday.

The median expectation is that the inflation rate will rise 4.7% in a year, according to the survey of consumer expectations of the Federal Reserve of New York, against 4.2% in February. It marks the first round of increases since October and adds a perplexing twist to the Fed’s campaign to crush price pressures with a series of aggressive rate hikes.

Consumers expect inflation to remain sticky in the coming years, according to the survey, estimating that inflation will hover around 2.8% in three years. By comparison, central bank policymakers predicted in their latest economic forecasts that inflation would fall to 2.5% next year.

Despite rising inflation expectations for the coming year, consumers expect food, gas and rent prices to fall in coming years as they anticipate a slight rising housing costs.

The survey, which is based on a rotating panel of 1,300 households, plays a key role in determining how Fed policymakers react to inflation crisis. Indeed, actual inflation depends, at least in part, on what consumers think it will be. It’s kind of a self-fulfilling prophecy – if everyone expects prices to rise 3% in the year, it signals to companies that they can raise prices by at least 3%. Workers, in turn, will want a 3% wage increase to offset rising costs.


Federal Reserve Chairman Jerome Powell speaks during a news conference on interest rates, the economy, and monetary policy actions, at the Federal Reserve Building in Washington, DC on June 15, 2022 . (Photo by Olivier Douliery/AFP via Getty Images/Getty Images)

President Jerome Powell has repeatedly warned that central bankers are watching for signs of rising inflation expectations, a sign that high consumer prices could take root in the economy.

“I think by the actions we take, though, we’re helping to keep long-term inflation expectations anchored and getting the public to believe in 2% inflation by the things we’re doing, even at a time when energy is part of the story of why inflation is high,” Powell told reporters last year.


Policymakers have already raised the benchmark federal funds rate nine straight times and opened the door for another rate hike at their next meeting in early May.

The new projections for inflation expectations come just two days before the release of new Consumer Price Index data, which is expected to show growing stickiness from higher inflation: Economists polled by Refinitiv s’ expect inflation to have risen 0.4% in March from the previous month and 6% from a year earlier, about three times the pre-pandemic average.

US inflation

A shopper looks at organic produce at a supermarket in Montebello, California on August 23, 2022. ((Photo by FREDERIC J. BROWN/AFP via Getty Images) / Getty Images)


The report also found that the share of households who said credit is harder to get compared to the same period last year rose to its highest level since 2014.

“Respondents were also more pessimistic about the future availability of credit, with the share of households expecting it to be harder to get credit in a year’s time also increasing,” the survey says.

During a credit crisis, banks dramatically increase their lending standards, making it difficult to get a loan. Borrowers may have to accept tougher terms, such as high interest rates, as banks try to reduce financial risk on their end. Less lending, in turn, would lead to lower spending by consumers and businesses alike.

Although it may help the Federal Reserve in its struggle to rein in stubbornly high inflation, it is also increasing the risk of a recession this year.

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