New York Fed April survey: U.S. consumers' long-term inflation expectations remain stable

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Despite the current inflationary pressures pushed up by the Middle East war and tariffs, the New York Fed’s April consumer survey shows that Americans’ three-year and five-year inflation expectations remain stable. This stands in contrast to the significant deterioration reflected in the University of Michigan’s consumer confidence survey and market expectations, providing some support for the Federal Reserve’s policy easing.

The consumer expectation survey released by the New York Fed on Thursday showed that respondents expect a 3.6% inflation rate one year from now, a slight increase from 3.4% in March; however, the three-year and five-year inflation expectations were 3.1% and 3%, respectively, indicating that concerns over long-term runaway inflation have yet to heat up significantly.

Respondents’ expectations for gasoline price increases over the next year also fell sharply from 9.4% in March to 5.1%, and expectations for food price increases also eased.

These survey results come as the current pressure from inflation in the U.S. is rising. The Personal Consumption Expenditures (PCE) price index for March rose 3.5% year-on-year, higher than the 2.8% in February and also above the Fed’s 2% target. Combined with tariffs and oil prices, several Fed officials have already publicly opposed future rate cuts, with some even suggesting the need to consider raising rates to curb inflation.

Long-term expectations stable, short-term expectations rise slightly

The New York Fed’s April survey shows that respondents’ one-year inflation expectations rose to 3.6%, reflecting a mild increase in short-term inflation expectations.

However, the three-year and five-year expectations remained at 3.1% and 3%, respectively, indicating that the public does not believe the current price pressures will evolve into sustained long-term inflation.

This result is significant for the Federal Reserve.

New York Fed President John Williams said before the release of the survey on Monday:

“Despite a series of shocks, inflation expectations remain well anchored, which is crucial, as well-anchored expectations are key to ensuring price stability amid unexpected shocks and extreme uncertainty.”

Discrepancy with other indicators

The relative stability of the New York Fed’s survey stands in sharp contrast to other indicators. The University of Michigan’s April consumer confidence survey showed significant deterioration in both three-year and five-year inflation expectations, and market expectations for the long-term inflation path have also moved higher.

Meanwhile, data released by the New York Fed on Wednesday showed that the degree of supply chain disruption has surged sharply, comparable to the impact seen during the Covid-19 pandemic, forming another channel for inflationary pressure.

On oil prices, analysts believe that no matter how the situation evolves, oil tankers from the Gulf region will still take weeks to reach global refiners, making it difficult to ease the tight supply situation in the short term.

Regarding personal financial conditions, respondents were mixed on current and future personal and household finances, and felt that obtaining credit has become more difficult compared to March.

On employment expectations, respondents had differing views on hiring and wage income prospects, and expect the unemployment rate to rise in a year, reflecting the public’s cautious view of the macroeconomic outlook.

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