New York Fed Survey: Consumers Expect Relief from Inflation and Debt Default Risks

A survey by the New York Federal Reserve on Tuesday showed that in October, American consumers were more confident about the ongoing easing of inflation and the health of the job market, and for the first time in five months, they believed the risk of debt default had decreased.

According to the New York Fed's monthly consumer expectations survey, American households' average inflation expectation for the next year is 2.9%, down from 3% in September, marking the lowest expectation for recent price increases in four years. The inflation expectations for the next 3 years and 5 years have also dropped to 2.5% and 2.8%, respectively.

These survey results may be welcomed by the Federal Reserve as it strives to control price pressures and anchor inflation expectations while continuing to shift its policy towards interest rate cuts. Since September, the Federal Reserve has cut rates twice, including a 25 basis point cut last week.

However, according to data from the Cleveland Fed's inflation research center, while consumers expect inflation to gradually ease, inflation expectations among American business leaders have risen in the fourth quarter of 2024. The latest survey found that CEOs expect an inflation rate of 3.8% over the next 12 months, up from 3.4% in July.

Since Trump won the U.S. presidential election last week, the outlook for Federal Reserve rate cuts has dimmed as people expect him to quickly implement stimulative tax reforms and other growth-promoting policies.

In September, the inflation measure used by the Federal Reserve to set its 2% annual price increase target fell to 2.1%, the lowest level since February 2021, and has now dropped more than 5 percentage points from the 40-year high in mid-2022. However, the sustained high prices over the past two years continue to affect consumer confidence, contributing to Trump's defeat of Democratic Vice President Harris.

The survey also showed that people's attitudes towards the job market and household credit conditions have improved.

American consumers expect the probability of rising unemployment one year from now to drop to 34.5%, the lowest level since February 2022; while the likelihood of being unemployed in the next 12 months is 13%, the lowest since January. Meanwhile, the expected probability of finding a new job after being unemployed has increased to 56%, the highest level in a year, up 3.3 percentage points from September, marking the largest increase since May 2021.

The unemployment rate in the U.S. in October was 4.1%, still at a historical low, but hiring has slowed.

With falling interest rates, slowing price growth, and expectations of continued activity in the job market, the estimates of consumers falling into debt default risk have improved for the first time since May. In September, the probability of being unable to make the minimum monthly payment next year dropped to 13.9%, down from the highest level since May 2020. The survey also indicated that people's perceptions of credit access have improved