US inflation outlook stable, credit pessimism rises in Fed survey

Median one-year-ahead inflation expectations rose slightly last month to 3.6% from 3.5% in July, the New York Fed said Monday

By Jonnelle Marte

US consumers’ inflation expectations were mostly stable in August, but households grew more concerned about their finances and more pessimistic about the job market, according to a Federal Reserve Bank of New York survey.
 

Median one-year-ahead inflation expectations rose slightly last month to 3.6 per cent from 3.5 per cent in July, the New York Fed said Monday. Expectations for what inflation will be at the three-year horizon declined to 2.8 per cent from 2.9 per cent. And the outlook for inflation in five years ticked higher to 3.0 per cent from 2.9 per cent.  

There were more notable changes in how consumers viewed their finances. “Perceptions about current credit conditions and expectations about future conditions both deteriorated,” the New York Fed said in a statement. 

Respondents said they thought it was more likely the unemployment rate would be higher one year from now. The perceived odds of losing a job over the next year rose by 2 percentage points to 13.8 per cent, the highest reading since April 2021. The odds of changing jobs voluntarily over the next year rose by 1.9 percentage points to 18.9 per cent in August. The increases for both questions were largest for people with a high school education or less and annual income below $50,000. 

Credit Concern
 

Consumers are growing more concerned about their ability to tap credit, with the share of households saying it is either much harder or somewhat harder to access credit now compared with a year ago rising to the highest level since the survey started in June 2013. More people also said they expect it will be harder to acquire credit in the coming year.

  

Fed officials raised interest rates significantly over the past 18 months, bringing their benchmark rate to the highest level in 22 years in July in an effort to cool demand and tame inflation. Those higher rates raise borrowing costs, and can cause banks to tighten access to loans and other credit. 

As inflation cools, policymakers are slowing the pace of their rate increases and are widely expected to leave their benchmark rate unchanged at a target range of 5.25 per cent to 5.5 per cent when they next gather on Sept. 19-20. An update on consumer prices due Wednesday will help to inform their decision. 

Encouraged by signs that price pressures and the labor market are gradually cooling, Fed officials are intent on not squandering their chance at an elusive “soft landing” by raising interest rates too much, even as they remain committed to returning inflation to their 2 per cent goal.