New York Fed Says Although Consumers Expressed Optimism On Year-Ahead Financial Situation, Inflation Expectations Ticked Up

One-year-ahead inflation expectations increased to 3.0%, three-year-ahead inflation expectations increased to 2.6%, and five-year-ahead inflation expectations increased to 2.9%, according to the New York Fed’s Center for Microeconomic Data’s Survey of Consumer Expectations.

The Federal Reserve Bank of New York said on Monday that although households expressed more optimism about their year-ahead financial situations, inflation expectations increased slightly.

According to the New York Fed’s Center for Microeconomic Data’s Survey of Consumer Expectations, median inflation expectations increased by 0.1 percentage point at all three horizons in November.

“One-year-ahead inflation expectations increased to 3.0%, three-year-ahead inflation expectations increased to 2.6%, and five-year-ahead inflation expectations increased to 2.9%,” the report said.

Meanwhile, the uncertainty about future inflation outcomes also increased at all three horizons.

At the same time, the report said the median expected growth in household income increased by 0.1 percentage point to 3.1% in November, while the median household spending growth expectations declined by 0.2 percentage point to 4.7%, the lowest reading since April 2021.

Notably, this week, the Bureau of Labor Statistics (BLS) is set to release the inflation data on Wednesday. Economists are reportedly expecting the headline consumer price index (CPI) to increase 0.2% month-on-month (MoM) while core CPI is expected to rise 0.3% MoM.

Last week, Federal Reserve officials Michelle Bowman and Beth Hammack expressed concerns over inflation and said there is a need to exercise caution with lowering rates in the coming times.

Fed Governor Michelle Bowman reportedly said that she continues to see greater risks to the price stability side of the central bank’s mandate, especially when the labor market continues to be near full employment.

At the same time, Cleveland Fed President Beth Hammack said moving slowly on the rate reductions will allow the Fed to calibrate policy to the appropriately restrictive level over time given the underlying strength in the economy.

Interestingly, the probability of a 25 basis points rate cut at the December Federal Open Market Committee (FOMC) meeting has increased to about 86% compared to nearly 62% in the first week of the current month, according to the CME FedWatch tool.

Meanwhile, benchmark U.S. indices were trading in the red on Monday. The SPDR S&P 500 ETF Trust (SPY) was trading 0.28% lower while the Invesco QQQ Trust, Series 1 (QQQ) was down 0.54%. On Stocktwits, retail sentiment ranged from ‘neutral’ to ‘bearish’ for these ETFs.

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