According to recent data from the Federal Reserve Bank of New York, Americans are bracing for a prolonged period of high inflation in the coming years. The Survey of Consumer Expectations, which is based on a rotating panel of 1,300 households, shows that the median expectation for inflation rate one year from now is 3%, remaining unchanged from the previous month. This indicates that consumers are becoming more convinced that the current spike in inflation is not temporary and could have long-lasting effects on their cost of living.
The survey also reveals that Americans expect inflation to remain elevated over the next three years, with a projected rate of 2.9%. This is a significant increase from the previous month's projection of 2.7% and January's projection of 2.4%.
The data suggests that Americans are losing confidence in the Federal Reserve's ability to control inflation and bring it back to the target rate of 2%. This could have implications for the Fed's monetary policy decisions in the near future.
While the overall inflation expectation remains steady, consumers anticipate an increase in the cost of necessities such as food, gasoline, medical care, rent, and college tuition in the next 12 months. This is a cause for concern as it could have a significant impact on the household budget. The rising inflation expectations also reflect the growing concerns about the state of the economy and its effect on people's financial well-being.
The New York Fed's survey plays a crucial role in determining the actions taken by the Federal Reserve to control inflation. It is a well-known fact that consumer expectations can influence actual inflation. If people believe that prices will continue to rise, businesses will adjust their prices accordingly, leading to a self-fulfilling prophecy. Therefore, the high expectations of inflation shown in the survey could affect the economic reality in the coming months.
In response to the rising inflation expectations, Fed Chair Jerome Powell has repeatedly emphasized the central bank's commitment to bringing inflation back to the target rate of 2%. However, it is becoming increasingly clear that the challenge of controlling inflation is more significant than initially thought, and it may take longer to achieve the desired results. Powell has also stated that the Fed will wait until they are confident that inflation is sustainably at 2% before considering any changes to interest rates.
Apart from inflation concerns, the New York Fed survey also points to growing worries about the labor market and household finances. The data shows that the probability of losing one's job in the next 12 months increased to 15.7%, the highest reading since September 2020.
This could be attributed to the stuttering economic recovery and ongoing uncertainty caused by the pandemic. Americans are also becoming more pessimistic about their chances of finding a new job if they were to lose their current one, with the mean perceived probability dropping to 51.2%, the lowest reading in nearly three years.
Despite these concerns, the survey shows a slight improvement in unemployment expectations, with the mean perceived probability of higher unemployment one year from now falling to 36.1%, the lowest reading in two years. This may suggest that Americans are becoming more confident in the economy's ability to bounce back, given the ongoing vaccination efforts and the recent stimulus package passed by Congress. However, the overall sentiment seems to be one of cautious uncertainty as the country navigates through the uncertain economic landscape.
While the Federal Reserve has tried to reassure the public that they are keeping a close eye on the situation, the data suggests that more needs to be done to restore confidence in the economy's future. Ultimately, time will tell if the current spike in inflation is indeed temporary, or if it will have long-lasting effects on the country's economic recovery.