Fed Survey: Consumer inflation expectations significantly rise, outlook worsens for labor market and financial conditions

The survey report released by the New York Fed on Monday showed that in April, American consumers' expectations for inflation and housing price increases have risen, while their views on the labor market have deteriorated, highlighting the unsettling situation regarding American households' financial and living costs.

Specifically, consumers expect:

• The price level to rise at an annualized rate of 3.3% in the next year, marking the highest reading since November last year. In the four months leading up to the release of the April survey data, consumers' inflation expectations hovered around 3%.
• The three-year inflation expectation fell to 2.8%, down from 2.9% in March.
• The five-year inflation expectation rose to 2.8%, up from 2.6% in March.
• Expectations for the speed of housing price increases hit the highest level since July 2022, at 3.3%. Prior to this, this expectation had been around 3.0% for seven consecutive months.

Prior to the release of the above consumer inflation expectations data, a series of reports were published, most of which indicated sticky inflation and continuous rise in housing prices. This week, the US will release key inflation data for April, with the market generally expecting the latest data to show that US CPI and PPI are still rising at a strong pace, with housing being a key factor driving inflation.

The latest survey by the New York Fed is similar to the University of Michigan consumer survey released last Friday. The Michigan report showed that the initial 1-year inflation expectation for May was 3.5%, the highest level in six months, significantly higher than the expected 3.2% and the previous value of 3.2% in April; the initial 5-year inflation expectation was 3.1%, also higher than the expected 3% and the previous value of 3% in April.

According to the New York Fed's survey, consumers also expect faster price growth for gasoline, food, medical care, college education, and rent.

At the same time, people's views on the labor market have deteriorated, with expectations for income growth declining and the likelihood of rising unemployment increasing. Respondents also lack confidence in their ability to find new jobs after losing their current ones, dropping to the lowest level in three years.

This situation has dealt a blow to American households' finances. The proportion of consumers expected to be unable to repay their minimum debt in the next three months has reached the highest level since the outbreak of the COVID-19 pandemic.

The increase in American inflation expectations from the Fed's survey led to a short-term decline in gold prices and US bond prices after the data was released:

• Spot gold fell by about $10 in the short term, with an overall intraday decline of about 1%, hitting a daily low of $2334.06
• The short-term rise in the yield of the 10-year US Treasury bond exceeded 1 basis point, approaching 4.485%, narrowing the overall intraday decline to less than 1.6 basis points. The US stock market had dropped to a daily low of 4.457% before the opening. The yield of the 2-year US Treasury bond rose by about 1 basis point in the short term, approaching 4.85%, narrowing the overall intraday decline to 1.7 basis points. The US stock market also dropped to a daily low of 4.8232% before the market opened.

Many Federal Reserve officials have stated that they would like to see more evidence of US inflation continuing to move towards the Fed's 2% target before cutting interest rates. Even hawkish officials, such as Fed Governor Bowman, stated last Friday that she sees no reason to cut rates this year. Currently, the futures market indicates that investors expect the Fed to cut rates once or twice before the end of the year