Americans grew more anxious about their personal finances in May even as expectations for near-term inflation edged slightly lower, according to the Federal Reserve Bank of New York's latest monthly Survey of Consumer Expectations.
The data arrives just days before Fed policymakers convene for their mid-June meeting, where officials are widely expected to hold the benchmark federal funds rate steady in the 3.50%–3.75% range as they attempt to reconcile conflicting economic signals at home and abroad.
Median one-year-ahead inflation expectations fell 0.1 percentage point to 3.5% in May, while the three- and five-year horizons held unchanged at 3.1% and 3.0%, respectively, according to the New York Fed survey.
The relative stability in longer-run figures will likely offer some reassurance to central bank officials who have pointed to anchored expectations as a sign the public retains confidence that inflation will eventually return to the Fed's 2% target.
However, uncertainty about future inflation increased at the one- and three-year horizons – a sign that, while the directional expectation held steady, consumers are less confident about what the path ahead actually looks like.
Expected home price appreciation jumped sharply, rising 0.5 percentage point to 3.5% – the most extreme reading since July 2022 – with the increase most pronounced in the West and Midwest Census regions. Year-ahead gasoline price expectations dipped modestly to 5.0%, while food price growth expectations rose 0.6 percentage point to 5.8%.
The consumer-level inflation picture has been complicated by the disruption to trade through the Strait of Hormuz, which has driven gasoline prices higher and added fresh supply chain pressures. The Personal Consumption Expenditures Price Index – the Fed's preferred inflation gauge – reached 3.8% year-over-year in April, well above the 2% target, according to the Bureau of Economic Analysis.
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Households had mixed feelings about the labor market in May. Mean unemployment expectations – the probability that the national unemployment rate will be higher in 12 months – fell 0.4 percentage point to 43.2%, suggesting reduced alarm about broad-based job losses. However, the mean perceived probability of losing one's own job in the next 12 months rose 0.5 percentage point to 15.1%, above its 12-month trailing average of 14.4%.
Voluntary quit intentions also climbed, with the expected quit rate jumping 2.6 percentage points to 20.8% – the highest reading since February 2023 – as respondents across age, education, and income groups weigh their options.
The mean probability of finding a new job after involuntary separation fell 2.3 percentage points to 43.7% in May, edging below its 12-month trailing average of 46.8%, indicating that workers are less confident in their re-employment prospects even as aggregate job creation remains relatively healthy.
The Bureau of Labor Statistics came through with an upward surprise last week, with jobs data showing total nonfarm payroll employment rose by 172,000 in May.
According to the New York Fed, the share of respondents doing worse financially than a year ago reached its highest level since January 2023. Meanwhile, the net share of those expecting their financial situation to improve over the next year – the difference between those anticipating a better versus worse outcome – fell to its lowest since October 2022.
Credit access expectations also deteriorated, with a smaller share of respondents counting on easier credit in the year ahead. The average perceived probability of missing a minimum debt payment in the next three months rose 1.2 percentage points to 12.6%, driven by lower-income households and respondents without college degrees.
Read more: Americans are stretched thin on every front and their banks aren't helping enough, survey finds
Median year-ahead household spending growth expectations edged down 0.4 percentage point to 5.0%, with more bearishness registering among those over age 60 and lower-income, lower-education groups.
Brent Schutte, chief investment officer at Northwestern Mutual, highlighted the pressure for Federal Reserve officials heading into the June meeting next week given the "delicate balance" in the economy.
"The economy is in a delicate balance. We are seeing the early signs of strengthening after a period of stagnant growth, one that is occurring alongside persistent inflation and a consumer still under pressure," Schutte wrote in a note on Monday.
Pointing to Fed funds futures, analysts at Franklin Templeton see the market leaning toward a hold this year – notwithstanding deep divisions among participants in the bank's April policy meeting – with a hike fully priced in by the first quarter of 2027.
"Prior to the US-Iran war, the market priced in two interest-rate cuts. Our base case remains that the Fed stays on hold in the near term," Taylor Topoussis and Chris Galipeau wrote from the Franklin Templeton Institute. "That can change, especially if the conflict escalates or drags on."
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