Consumers’ inflation expectations remained steady to start 2025, with median forecasts unchanged at 3.0% for both the one-year and three-year horizons, according to the latest Survey of Consumer Expectations from the New York Federal Reserve.
- At the five-year mark, inflation expectations ticked up 0.3 percentage point to 3.0%, reflecting a slightly more cautious long-term view.
- Meanwhile, consumers expect household income to keep pace with inflation, with expected income growth rising 0.2 percentage point to 3.0%—a range it has held since August 2023.
Labor Market. Despite signs of a cooling labor market, consumer confidence remains firm. The mean probability that unemployment will rise in the next year dropped 0.6 percentage point to 34.0%, the lowest since July 2021.
Housing Market. On housing, median home price growth expectations edged up to 3.2%, with the increase driven largely by respondents in the West census region.
Mixed Data. This report contrasts with the University of Michigan consumer sentiment survey from last week, which showed one-year inflation expectations jumping to 4.3%, the highest since November 2023.
- The Michigan survey flagged “two consecutive months of unusually large increases,” raising concerns inflation could prove stickier than expected.
Impact on Rates. Consumers are still concerned about inflation. Tariffs and threats of trade wars probably aren’t helping matters. Because consumer expectations of price growth can impact spending, consumer expectations can be just as impactful on the economy as actual inflation data. Therefore, rising expectations of inflation can lead to tighter monetary policy.