Reduced Inflation Expectations
A new survey conducted by the Federal Reserve Bank of New York reveals that Americans are feeling more optimistic about the future of inflation. The median expectation is that the inflation rate will be up 3.4% one year from now, a significant decrease from the high of 7.1% recorded in June 2022. This marks the lowest reading since April 2021.
Long-Term Outlook
While consumers anticipate that price growth will slow in the long term, the survey projects that inflation will hover around 3% three years from now and 2.7% five years from now, indicating that sticky inflation may persist. These figures remain above the Federal Reserve’s target of 2%, as projected in their latest economic forecasts for 2025.
Consumer Expectations and Fed Policy
The survey plays a critical role in determining how Federal Reserve policymakers respond to the inflation crisis. Actual inflation is influenced, at least in part, by consumer expectations. If consumers anticipate a certain level of price increase, businesses may adjust their prices accordingly, creating a self-fulfilling prophecy.
Commitment to Inflation Control
Chairman Jerome Powell has repeatedly emphasized the Fed’s commitment to bringing inflation back to the target goal of 2%. The Fed has raised the benchmark federal funds rate 11 consecutive times since March 2021 in an attempt to curb inflation and slow economic growth.
Future Monetary Policy
While the possibility of another rate increase remains, many economists believe that the central bank is done with its tightening campaign. The Fed’s final meeting of the year is scheduled for this week, with expectations that rates will be held steady at the current range of 5.25% to 5.5%, the highest level since 2001.