US Economy News Today: Will Long-Term Inflation Be Higher Than Previously Expected?

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Consumers Are Confident in Household Finances But Still Forecast Long-Term Inflation Issues

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The New York Federal Reserve Survey of Consumer Expectations painted a mixed picture of inflation in May while showing increasing confidence in household finances. 

Though consumers’ short-term outlook on inflation improved, they soured on their long-term expectations, which Federal Reserve officials closely watch. 

The May survey showed consumers expect prices to grow at 3.2% over the next year, a tick better than their expectations in April. Looking three years out, consumers kept their inflation projections at 2.8%, but on a five-year horizon, consumer inflation expectations jumped to 3%, showing that the public is still seeing long-term price pressures.

Federal Reserve officials closely watch consumer sentiment surveys on inflation, as expectations on price increases can help drive the inflation rate. At an event in May, Chicago Federal President Austan Goolsbee said five-year consumer inflation expectations can be a better gauge of inflation’s path than short-term survey readings.

Consumers are also expecting home prices to go up by 3.3% over the year, and that, along with their expectations for gas, food and rent were unchanged from the prior month.

The survey showed consumers have better perceptions of their household finances, with 78.1% expecting to be financially the same or better over the next year, while 40.5% see stock prices moving higher, with both results reaching their highest levels since 2021.

-Terry Lane