The New York Federal Reserve said Monday that Americans' inflation fears declined for the first time in over a year in January, although concerns over rising prices remained near a record-high level.
The median expectation is that the inflation rate will be up 5.8% one year from now, down from an 11-year high of 6%, according to the New York Federal Reserve's Survey of Consumer Expectations. It marked the first time since October 2020 that consumers' short-term inflation expectations fell. Inflation expectations over the next three years also dropped to 3.5%, down from 4% last month.
"Taken together, these findings indicate that consumers are taking less signal than before the pandemic from inflation news in updating their longer-term expectations, and that they do not view the current elevated inflation as very long-lasting," New York Fed economists wrote in an accompanying analysis of the survey.The survey plays a critical role in determining how Fed policymakers respond to the recent inflation spike.
The eye-popping reading – which marked the eighth consecutive month the gauge has been above 5% – could also amp up pressure on the Federal Reserve to kick off its interest rate increases next month with a half-basis point hike. Raising interest rates tends to create higher rates on consumers and business loans, which slows the economy by forcing them to cut back on spending.
Fed Chairman Jerome Powell has left open the possibility of a rate hike at every meeting this year and has refused to rule out a more aggressive, half-percentage point rate hike, but said it's important to be "humble and nimble." "We’re going to be led by the incoming data and the evolving outlook," he told reporters during the central bank's policy-setting meeting last month.