For The Seventh Month In A Row, American Households Say They Expect Inflation

A Federal Reserve Bank of New York poll revealed that households’ predictions for inflation hit their seventh consecutive high.

The New York Fed’s monthly Survey of Consumer Expectations found that households’ “expectations about year-ahead inflation, home price and rent price changes, earnings, income, and spending growth all increased in May.” 

According to a New York Fed press release:

Median one-year-ahead inflation expectations increased by 0.6 percentage point in May to 4.0%, the seventh consecutive monthly increase and a new series high. Median inflation expectations at the three-year horizon increased from 3.1% to 3.6%, the second-highest level in this series, behind only the reading from August 2013. The increase at both horizons is particularly pronounced among respondents age 60 and over and among those with a high school degree or less. 

Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — increased sharply at the short- and medium-term horizons. Both measures are well above the levels observed before the outbreak of COVID-19.

In May, the inflation rate measured via the Consumer Price Index (CPI) increased to 5% — its highest level in over a decade. Nevertheless, the Federal Reserve and the Biden administration’s Treasury Department — which oversee the United States’s monetary and fiscal policy, respectively — are both maintaining a dovish approach to inflation.

The Fed plans to keep interest rates near zero through the next two years — a benchmark that entails purchasing $120 billion in Treasury bonds every month. In response to skyrocketing inflation, however, the Fed may amend this policy during its June meeting.

Meanwhile, in a recent interview with Bloomberg News, Treasury Secretary Janet Yellen stated that “if we ended up with a slightly higher interest rate environment” as a result of President Biden’s federal spending proposals, it would “actually be a plus for society’s point of view and the Fed’s point of view.” She also stated that the American Jobs Plan, the American Families Plan, and other omnibus bills are “meant as investments to address long-standing needs of our economy” rather than “stimulus.”

The Survey of Consumer Expectations also revealed that households’ expectations for the probability of losing one’s job decreased, while expectations for the probability of finding a job and seeing higher earnings rose sharply. Such changes are reflective of a labor market in which employers are struggling to fill positions — a trend that allows American workers to be more selective about the jobs they choose to accept.

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