Customers shop at a Costco store on August 31, 2023 in Novato, California. According to a report from the Department of Commerce, consumer spending rose 0.8% in July, beating expectations of 0.7%. (Photo by Justin Sullivan/Getty Images)
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Consumers are increasingly skeptical about the Federal Reserve's ability to meet inflation targets any time soon, according to a New York Fed survey on Monday.
While the forecast over the next year was unchanged at 3%, this was not the case over the long term. Over three years, forecasts rose 0.3 percentage points to 2.7%, while five-year forecasts jumped even more, up 0.4 percentage points to 2.9%.
All three are well ahead of the Fed's 2% 12-month inflation target, suggesting the central bank may need to keep policy tighter for longer. Economists and policymakers view expectations as a key factor in seeing the path of inflation, so the February consumer expectations survey could be bad news.
“Long-term inflation expectations appear to have remained well established, as evidenced by a wide range of surveys of households, businesses and forecasters, as well as measures from financial markets,” Fed Chairman Jerome Powell said last week during testimony on Capitol Hill. . “We remain committed to reducing inflation to our 2 percent target and keeping long-term inflation expectations well anchored.”
Headline inflation based on personal consumption expenditures prices, the Fed's preferred measure, rose 2.4% in January – or 2.8% at the core level excluding food and energy. These readings represent progress in the Fed's battle, although some economists have warned that the “last mile” to 2% will be the most difficult.
The Federal Reserve is expected to keep interest rates steady when it meets next week, with the market pricing in a cut in June followed by perhaps three more cuts before the end of the year, according to CME Futures Market Gauge Group.
Other inflation measures in the February survey offered some hope.
Notably, rental cost expectations fell to 6.1%, down 0.3 percentage points to the lowest reading since December 2020. Sheltering remains the most stubborn component of inflation, but one Fed official believes it will ease as the year progresses and tenants negotiate. New lease contracts.
Elsewhere, the one-year forecast for gas rose 0.1 percentage point to 4.3%, fell 1.8 percentage point to 6.8% for Medicare and was unchanged for food at 4.9%. Household spending expectations over the next year rose to 5.2%, an increase of 0.2 percentage points.
Participants also indicated some concern about job opportunities. The probability of losing a job in the next year rose to 14.5%, an increase of 2.7 percentage points.
