A gasoline nozzle pumps gas into a vehicle in Los Angeles, California on August 23, 2022.
Frederic J. Brown | AFP | Getty Images
Inflation expectations and the outlook for household spending growth fell sharply in September as the Federal Reserve’s rate hikes continued in the US economy.
According to the latest New York Fed Survey of Consumer Expectations, consumers expect inflation to reach 5.4% in a year, its lowest in a year and down from 5.75% in August.
That level peaked at 6.8% in June and has since fallen as the central bank implemented a series of rate hikes totaling 3 percentage points. Markets largely expect the Fed to continue raising interest rates until inflation is brought back to its long-term target of 2%.
While the short-term outlook for inflation has improved, respondents also said they see household spending growth of 6% in the coming year, a sharp decline from August’s 7.8% projection. That’s the lowest level since January and the largest single-month drop ever in a data series dating back to June 2013.
Consumers are somewhat constrained by price increases approaching their highest level in more than 40 years. According to the Bureau of Economic Analysis, personal consumption expenditure in inflation-adjusted dollars rose just 0.1% in August, while the savings rate fell.
Respondents have slightly higher their outlook for three-year inflation, pushing that forecast up to 2.9%, up 0.1 percentage point from August. The median five-year expectations rose to 2.2%, up 0.2 percentage points, but much closer to the Fed’s target.
Elsewhere in the survey, respondents said they expect house prices to rise just 2%, the lowest level since June 2020 and a reflection of a slowing real estate market. Consumers are seeing gas prices rise half a percentage point and food prices 6.9%, up a full percentage point from the August survey.
The numbers come as the central bank seeks to halt a rise in the cost of living caused by pandemic factors, such as supply chain congestion. Unprecedented levels of fiscal and monetary stimulus also coincided with the rise in inflation. The Fed has scaled back its efforts, raised interest rates and started reducing the size of the bond portfolio on its massive $8.8 trillion balance sheet.