In a hopeful sign for both consumers and policymakers, inflation expectations in the U.S. have dropped to their lowest level in almost four years, according to the New York Federal Reserve’s latest Survey of Consumer Expectations.
First Time In 4 Years: In October, median inflation expectations fell across the board, all settling below the 3.0% mark—a first since late 2020.
- One-year-ahead expectations fell by 0.1 percentage points to 2.9%, a small but notable drop from September’s 3.0%. This marks the lowest level since November 2020.
- Three-year-ahead expectations dropped by 0.2 percentage points to 2.5%.
- Five-year-ahead expectations nudged down by 0.1 percentage points to 2.8%.
These downward revisions suggest that consumers are feeling more confident about inflation staying within a manageable range over the next several years.
Labor Market: The survey also signaled an improving labor market outlook. Mean unemployment expectations, or the average probability that the U.S. unemployment rate will be higher a year from now, decreased by 1.7 percentage points to 34.5%. This figure represents the lowest level since February 2022, potentially reflecting growing optimism about job stability.
- Wages: One-year-ahead earnings growth expectations remained steady at 2.8% in October, indicating little movement in consumer expectations for wage increases. Since January 2024, this measure has shown minimal fluctuation, staying in a narrow range between 2.7% and 3.0%.
Housing: In the housing sector, median home price growth expectations held steady at 3.0% in October. This measure has hovered between 3.0% and 3.3% since August 2023, pointing to consistent but modest expectations for home price growth among consumers.
Bottom Line: The data offers a positive snapshot of consumer sentiment as inflation pressures appear to ease, at least from the public’s perspective. However, it’s worth noting that the survey was conducted before the November 5th election, and consumers’ economic outlooks may have shifted since then, adding an element of uncertainty to these findings.
