Federal Reserve survey: Consumers' short-term inflation expectations rise, views on employment hit worst level in at least 12 and a half years

Federal Reserve survey: Consumers' short-term inflation expectations rise, views on employment hit worst level in at least 12 and a half years

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

The Fed's report showed that consumers expect prices to rise by 3.4% in the coming year, up from 3.2% in November. For the medium and long term, consumers' inflation expectations for the next three and five years both remained unchanged at 3%.

Breaking it down by specific categories:

  • The median expectation for house price increases among those surveyed remained at 3.0% for the seventh consecutive month. Since August 2023, this indicator has fluctuated within a narrow range of 3.0%–3.3%.
  • Expectations for rent increases over the next year dropped by 0.6 percentage points to 7.7%.
  • Expectations for gasoline price increases over the next year fell by 0.1 percentage points to 4.0%.
  • Expectations for food price increases over the next year fell by 0.2 percentage points to 5.7%.
  • Expectations for medical expense increases over the next year fell by 0.2 percentage points to 9.9%.
  • Expectations for tuition increases over the next year fell by 0.1 percentage points to 8.3%.

Meanwhile, here are the survey data on the labor market:

  • The probability that consumers think they could find a new job if they lost their current one dropped to 43.1%, the lowest level since the New York Fed launched the “Survey of Consumer Expectations” in mid-2013. This decline was mainly driven by respondents with annual household income below $100,000, and was most pronounced among those aged over 60 and those with high school education or less.
  • The median one-year income growth expectation fell by 0.1 percentage points to 2.5% in December, still below its 12-month rolling average of 2.7%. Since May 2021, this indicator has fluctuated between 2.4%–3.0%.
  • The mean unemployment expectation, that is, the average probability that the U.S. unemployment rate will rise in a year, dropped by 0.3 percentage points to 41.8%, but is still above the 12-month rolling average of 39.9%.
  • The mean subjective probability of becoming unemployed in the next 12 months rose by 1.4 percentage points to 15.2%, above the 12-month rolling average of 14.3%. This increase was widespread across age and education groups. The mean probability of voluntarily quitting a job over the next 12 months dropped by 0.2 percentage points to 17.5%.

The New York Fed’s survey also shows the following data regarding household finances:

  • The probability that consumers will be unable to make minimum debt payments on time in the next three months is 15.3%, the highest since April 2020. Meanwhile, the share of respondents expecting their financial situation to improve over the next year rose to the highest level since February 2025.
  • The median household income growth expectation rose by 0.1 percentage points to 3.0% in December, slightly above its 12-month rolling average of 2.9%.
  • The median one-year household spending growth expectation dropped by 0.1 percentage points to 4.9%.
  • Compared to a year ago, perceptions of access to credit have worsened: the proportion of households saying “credit is harder to get” increased, while the proportion saying “credit is easier to get” decreased. Expectations for future credit availability also weakened slightly, with a higher net proportion of respondents expecting it to be harder to get credit over the next year.
  • Compared to a year ago, perceptions of current household financial conditions have improved: the proportion of households saying their financial conditions have worsened declined, while the proportion saying they have improved rose. Expectations for household financial conditions a year from now have also improved: the proportion expecting their finances to worsen declined, while the proportion expecting them to improve rose to the highest level since February 2025.

Analysis indicates that these data highlight divisions within the Fed: some officials are more concerned about inflation, while others believe rising unemployment is the greater risk. This divergence will likely lead the Fed to keep interest rates unchanged at its next policy meeting later this month.

This survey result comes just before the U.S. Bureau of Labor Statistics is set to release the monthly major non-farm payroll data on Friday, and the Consumer Price Index (CPI) data is scheduled for release on January 13.

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