U.S. households are increasingly concerned about their financial situation, with the highest percentage in nearly four years saying they see their financial situation as much worse than it was 12 months ago, according to a New York Fed survey.
The central bank’s monthly consumer expectations survey released on Monday showed the inflation outlook largely unchanged, but public perception of the situation worsened.
The percentage of people who think the current situation is “much worse” than a year ago jumped to 13.3%, an increase of about 2.7 points from April and the highest since July 2022. A total of 43.7% say the economy is much or somewhat worse than it was a year ago, the highest since January 2023, according to the New York Fed.
At the same time, the outlook for next year was not at all good.
A total of 36% of people expected their situation to worsen significantly or somewhat, while only 22.9% expected their situation to improve. In a statement, the Federal Reserve Bank of New York said that the gap between people who say the situation is improving and that it is getting worse is the lowest since October 2022.
impact of inflation
The survey includes consumers concerned about the inflationary effects of the Iran war, which has caused energy prices to soar.
Some Fed policymakers have recently expressed concern that a prolonged dispute could raise inflation expectations among consumers and businesses, making the problem more lasting than the typical temporary effects of supply shocks.
However, the survey revealed that consumers are concerned about prices remaining virtually unchanged.
Inflation expectations one year out fell by just 0.1 percentage point to 3.5%. The outlook for the three-year and five-year time frames remained flat at 3.1% and 3%, respectively.
Indeed, while the outlook for gasoline prices fell by 0.1 percentage points to 5%, the outlook for groceries increased by 0.6 percentage points to 5.8% and rents increased by 1.4 percentage points to 7.4%. Additionally, expectations for household spending growth over the next year fell to 5%, down 0.4 percentage points from April.
Consumers will find out the next inflation rate on Wednesday when the Bureau of Labor Statistics releases the Consumer Price Index for May. Economists surveyed by Dow Jones expect headline inflation to rise to 4.2% and core inflation, which excludes food and energy, to rise to 2.9%. The Fed targets inflation at 2%.
The Federal Open Market Committee will make its next interest rate decision on June 17th. Markets are pricing in a near zero chance that the committee will cut the benchmark interest rate, raising expectations that the central bank will instead raise interest rates by a quarter of a percentage point by the end of the year.
Correction: One-year inflation expectations have fallen by just 0.1 percentage point to 3.5%. A previous version incorrectly documented this move.
