US Consumer Inflation Expectations Hit Lowest Level Since January 2021
US consumer inflation expectations for December fell to 3%, the lowest level since January 2021, marking a significant drop from November’s 3.4%, according to a survey from the Federal Reserve Bank of New York. This latest dip signifies the third consecutive month of decreasing expectations, injecting an optimistic perspective into the US economic outlook.
Diminishing Inflation Expectations
The study revealed a notable reduction in median inflation expectations across all horizons. The anticipated inflation rate for the next year fell to 3.0%, down from 3.4% in November. Over the next three years, expectations adjusted downward to 2.6%, and the five-year prediction dropped to 2.5%. This downward shift in expectations reflects a belief in the efficacy of the Federal Reserve’s monetary policies.
The updated inflation expectations have implications for various sectors. Treasury yields, for example, fell in response to the survey. The market is now pricing in a 66.3% chance of the central bank cutting borrowing costs by its March meeting. This shift also impacts the US Dollar Index, gold prices, and the SP500, all influenced by the release of the Consumer Inflation Expectations report.
Expectations on Price Changes
Interestingly, the decline in inflation expectations is largely attributed to anticipated decreases in the prices of food and rent. However, college costs are predicted to rise at a faster rate. Projections for gasoline prices and medical care costs have remained stable, suggesting that consumers do not anticipate significant changes in these areas. Meanwhile, expected year-ahead earnings growth also slowed, with respondents earning less than $50,000 expecting 1% income growth, while those earning $100,000 or more are anticipating 3%.
Despite the pullback in expected earnings growth, respondents projected an improvement in the jobs market. The perceived probability of job loss fell, and more consumers are anticipating lower unemployment rates one year from now, further highlighting the growing optimism among US consumers regarding their economic future.
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