In a recent survey conducted by the New York Federal Reserve, American consumers expressed subdued short-term inflation expectations, reaching the lowest level in over two years. The findings also revealed a positive sentiment regarding the anticipated growth of home prices.
Short-Term Inflation Expectations Declined While Long-Term Outlook Was Mixed
According to the survey, respondents projected a year-ahead inflation rate of 3.8% for June, a decline from the 4.1% estimate in May. This decrease represents the weakest reading since April 2021, and a notable drop of three percentage points from the peak recorded a year ago. However, the long-term inflation outlook was mixed, with expectations for inflation three years ahead remaining steady at 3% and rising to 3% five years out, compared to May’s 2.7% projection. It is worth noting that the Federal Reserve’s target inflation rate is 2%.
Home Price Optimism Grows
The survey findings also highlighted the positive trajectory of home price expectations. Respondents predicted a 2.9% increase in home prices, reflecting a fifth consecutive monthly improvement. This trend represents a recovery from levels observed a year ago, with May’s anticipated rise standing at 2.6%. However, the optimistic outlook on housing prices might raise concerns for the Federal Reserve, as some policymakers have cautioned that the housing market could be rebounding from the impact of aggressive interest rate hikes. It’s interesting to note that home price expectations improved despite 30-year mortgage rates recently hit the highest level in 2023.
Labour Market Outlook Was Mixed
Opinions on the labor market were mixed among survey participants. The percentage of respondents expressing concerns about potential job loss in the next year rose to 12.9%, the highest level since November 2021. On the other hand, expectations of an overall increase in the unemployment rate reached their lowest point since April 2022.