Americans are expecting lower increases in inflation in both the short term and over the longer run, the New York Federal Reserve said in a report Monday.
The regional Fed bank said in its November Survey of Consumer Expectations that one year from now, respondents see inflation running at a 5.2% rate, down from 5.9% in the last survey. That’s the largest month-to-month decline on record, the bank said.
Three years from now, consumers see inflation running at a 3% rate, down slightly from 3.1% in October.
The Fed watches the public’s views on the inflation outlook carefully.
“They matter because actual inflation depends, in part, on what we expect it to be,” economists at the Brookings Institution wrote in a recent report.
In other words, expectations of inflation have been a leading indicator for future inflation.
Fed Chairman Jerome Powell told reporters in May that the central bank “can’t allow inflation expectations to become unanchored.”
That’s one reason the Fed has been raising interest rates at a rapid clip this year. The Fed is expected to hike its benchmark rate on Wednesday by an additional half percentage point to a range of 4.25% to 4.5%. The benchmark rate was close to zero in March.
Treasury Secretary Janet Yellen told “60 Minutes” that she expects much lower inflation by the end of next year.
The New York Fed survey also showed that Americans are not expecting their homes to continue to appreciate at a fast pace.
Expectations of home-price growth dropped by 1 percentage point to 1% in November. This is the lowest reading since May 2020.
Existing home prices soared 45% during the pandemic but have started falling on a month-to-month basis.