In August, consumers in the United States experienced a rebound in their inflation expectations over the medium-term horizon, as reported by the Federal Reserve Bank of New York. The median expectations for one-year and five-year inflation remained unchanged at 3% and 2.8%, respectively, for the last month; however, the three-year inflation outlook saw an increase to 2.5%, up from 2.3%.
This was derived from the regional Fed's Survey of Consumer Expectations, which highlighted varied trends across different sectors. For instance, while the inflation forecasts for gas, rent, and medical care rose, there was a decrease noted in food prices and the costs associated with higher education. Additionally, the median expectations for home price growth increased to 3.1% in August, compared to 3% the previous month.
Looking ahead, government statistics are likely to indicate a sequential increase of 0.2% in consumer inflation for the month, with an annual rise of 2.6%. This data is set to be released on Wednesday and will be complemented by the official producer prices report for August, scheduled for Thursday. Earnings growth expectations for the one-year horizon also experienced an uptick to 2.9% in August, an increase from 2.7% the prior month.
In terms of unemployment, projections advanced to 37.7%, up from 36.6%. Interestingly, the mean perceived probability of individuals losing their jobs in the next 12 months has decreased by one percentage point to 13.3%, while the likelihood of voluntarily leaving a job has declined to 19.1%, down from 20.7%.
Perceptions surrounding the probability of finding a new position have also slightly decreased by 0.2 percentage points to 52.3%, according to the findings from the New York Fed survey. On Friday, official data revealed that job additions in the US economy for August fell short of expectations, despite a decline in the unemployment rate.
This mixed labor market narrative arrives as New York Fed President John Williams indicated the 'appropriateness' of easing monetary policy in the upcoming sessions, echoing sentiments from Governor Christopher Waller, who emphasized the importance of this strategy later in the month. Fed Chair Jerome Powell previously noted that the 'time has come' for interest rate cuts, although the timing and scale of any policy revisions will hinge upon forthcoming economic data. Experts share their insights on the implications of the current economic landscape.
Lindsey Piegza, Stifel's Chief Economist, and Economist Lauren Henderson stated in a note to clients on Monday, "A weaker-than-expected rise in topline hiring coupled with no further upward momentum in inflation last month seemingly solidifies the Fed's commitment to a first-round rate cut later this month.
However, the lack of meaningful downward momentum in price pressures, coupled with a downtick in the unemployment rate and stronger wage gains, removes the necessity for a more aggressive policy response in terms of either significant rate cuts or expedited easing." Market forecasts suggest that the odds of a 25-basis-point cut in interest rates next week have climbed to 73%, a modest rise from 70% on Friday.
Conversely, the likelihood of a more substantial 50-basis-point reduction has decreased to 27%, down from 30%, as indicated by the CME FedWatch tool. The median expected growth rate for household income also saw a slight increase of 0.1 percentage point to 3.1%, and the outlook for household spending growth has advanced by the same margin to reach 5%.
These insights from the New York Fed survey paint a picture of cautious optimism amid fluctuating inflation expectations and a generally stable labor market..