Fed survey: Consumers' short-term inflation expectations rise, views on employment the worst in at least 12-and-a-half years

**Source**: Wall Street Insights

**Author**: He Hao

A Federal Reserve report showed that consumers expect prices to rise by 3.4% over the next year, up from 3.2% in November. The probability that consumers believe they can find a new job if they lose their current one dropped to 43.1%, the lowest level since the Federal Reserve Bank of New York launched its *Survey of Consumer Expectations* in mid-2013.

On Thursday local time, according to the latest monthly survey released by the Federal Reserve Bank of New York, U.S. consumers' inflation expectations rose in December, while their outlook on job opportunities deteriorated to the worst level in at least 12 and a half years.

The Fed report indicated that consumers anticipate a 3.4% price increase over the next 12 months, higher than the 3.2% forecast in November. In the medium and long term, consumers' inflation expectations for the next three years and five years both remained unchanged at 3%.

Breaking down by specific categories:

- The median expected growth rate of home prices has stayed at 3.0% for the seventh consecutive month. Since August 2023, this indicator has fluctuated within the narrow range of 3.0% – 3.3%.

- The expected rent growth rate over the next year fell 0.6 percentage points to 7.7%.

- The expected gasoline price growth rate over the next year dropped 0.1 percentage points to 4.0%.

- The expected food price growth rate over the next year declined 0.2 percentage points to 5.7%.

- The expected growth rate of medical costs over the next year decreased 0.2 percentage points to 9.9%.

- The expected growth rate of higher education costs over the next year fell 0.1 percentage points to 8.3%.

At the same time, the survey data on the labor market are as follows:

- The probability that consumers think they can secure a new job if they lose their current position slid to 43.1%, the lowest reading since the New York Fed initiated the *Survey of Consumer Expectations* in mid-2013. This decline was mainly driven by respondents from households with an annual income below $100,000, and was most pronounced among people aged 60 and above as well as those with a high school education or less.

- The median expected year-ahead income growth fell 0.1 percentage points to 2.5% in December, still below its 12-month moving average of 2.7%. Since May 2021, this indicator has fluctuated within the range of 2.4% – 3.0%.

- The mean unemployment expectation, which refers to the average probability that respondents believe the U.S. unemployment rate will rise in a year, dropped 0.3 percentage points to 41.8%, yet remained above its 12-month moving average of 39.9%.

- The mean perceived probability of job loss in the next 12 months rose 1.4 percentage points to 15.2%, higher than its 12-month moving average of 14.3%. This increase was widespread across different age and education groups. The mean probability of voluntarily leaving one's job in the next 12 months fell 0.2 percentage points to 17.5%.

The New York Fed survey also presented the following data on household finances:

- The probability that consumers think they will be unable to make the minimum debt payment on time in the next three months stood at 15.3%, the highest level since April 2020. Meanwhile, the proportion of respondents expecting their financial situation to improve over the next year climbed to the highest point since February 2025.

- The median expected year-ahead household income growth rose 0.1 percentage points to 3.0% in December, slightly above its 12-month moving average of 2.9%.

- The median expected year-ahead household spending growth fell 0.1 percentage points to 4.9%.

- Perceptions of credit access compared to a year ago have deteriorated: the proportion of households that believe credit is "harder to obtain" has increased, while the share of those who think credit is "easier to obtain" has decreased. Expectations for future credit availability have also weakened slightly, with the net proportion of respondents anticipating it will be harder to obtain credit over the next year rising.

- Perceptions of current household financial conditions compared to a year ago have improved: the proportion of households that feel their financial situation has worsened has declined, while the share of those who think it has improved has increased. Expectations for household financial conditions a year from now have also gotten better: the proportion of respondents expecting their financial situation to worsen has dropped, while the share of those anticipating an improvement has risen to the highest level since February 2025.

Analysts pointed out that these data highlight the divisions within the Federal Reserve: some officials are more concerned about inflation, while others believe that rising unemployment is the greater risk. This divergence is likely to keep the Fed on hold at its next policy meeting later this month.

The release of the survey results comes ahead of the U.S. Bureau of Labor Statistics' release of the closely watched monthly nonfarm payrolls data on Friday, while the Consumer Price Index (CPI) data is scheduled to be published on January 13.

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