US Markets
Monday, March 11th, 2024 3:22 pm EDT
Key Points
- Consumer doubts on Federal Reserve’s ability to achieve inflation goals are rising, as indicated by a New York Federal Reserve survey.
- Long-term inflation expectations have increased, with projections for the three-year and five-year outlooks surpassing the Fed’s 2% goal for 12-month inflation.
- Despite progress in headline inflation, challenges remain in reaching the target, prompting expectations of continued tight monetary policy, with market indications suggesting potential rate cuts in the future
The New York Federal Reserve conducted a survey revealing a growing skepticism among consumers regarding the Federal Reserve’s ability to meet its inflation targets in the foreseeable future. Although the outlook for inflation over the next year remained steady at 3%, longer-term expectations saw an increase, with the three-year projection rising by 0.3 percentage points to 2.7% and the five-year outlook jumping by 0.4 percentage points to 2.9%. These figures surpass the Fed’s 2% inflation goal for the 12-month period, suggesting a potential need for the central bank to maintain tighter monetary policies for an extended duration. Economists and policymakers emphasize the significance of inflation expectations in shaping the trajectory of inflation, making the February Survey of Consumer Expectations a concerning development. Federal Reserve Chair Jerome Powell reiterated the commitment to bring inflation back to the 2% target and to ensure the anchoring of longer-term inflation expectations, despite acknowledging the persistent challenge of reaching the desired level. Headline inflation, as measured by personal consumption expenditures prices, showed progress by reaching 2.4% in January, or 2.8% at the core level excluding food and energy. However, economists caution that achieving the final stretch back to 2% could prove to be the most arduous. Market expectations suggest the Fed will maintain interest rates during its upcoming meeting, with futures markets indicating a potential rate cut in June followed by further cuts by the year’s end. The survey also provided some positive indicators, such as a decrease in the outlook for rent costs to 6.1%, the lowest reading since December 2020. While shelter costs have been a persistent inflationary component, Federal Reserve officials anticipate a gradual easing as tenants negotiate new leases throughout the year. Additionally, the survey highlighted shifts in other inflation measures, including a slight increase in the one-year outlook for gas to 4.3%, a notable decrease for medical care to 6.8%, and stability in the outlook for food at 4.9%. Furthermore, respondents expressed growing concerns about job prospects, with the perceived probability of losing one’s job in the next year rising to 14.5%, marking an increase of 2.7 percentage points.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/03/11/long-term-inflation-expectations-rise-spelling-possible-trouble-for-the-fed-survey-shows.html
