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New York Fed survey shows rising inflation outlook, driven by expected rise in housing costs

2024-05-14

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A survey from the New York Federal Reserve showed that both the one- and five-year inflation prospects rose as respondents were less confident that the central bank will achieve its 2% target anytime soon. Respondents said they expected median house prices to grow 3.3% next year, the highest level since July 2022.

A survey released by the New York Fed on Monday showed that consumers in April raised their expectations for near- and long-term price increases, driven by rising home prices and fuel and energy prices.

The New York District Federal Reserve reported in its monthly Survey of Consumer Expectations that expectations for the next one and five years have increased as respondents are less confident that the Fed will achieve its 2% inflation target in the short term.

On a one-year basis, the expectation rose to 3.3%, an increase of 0.3 percentage points from March and the highest level since November 2023. Expectations for the five-year outlook rose to 2.8%, an increase of 0.2 percentage points. However, from a three-year perspective, the outlook drops to 2.8%, a decrease of 0.1 percentage points.

The results echo a University of Michigan confidence survey released Friday. The survey showed one-year expectations in May were at 3.5%, also up 0.3 percentage points, while five-year expectations edged up to 3.1%.

Weekly jobless claims jumped to 231,000, the highest level since August last year

All of these figures are well above the Fed's 2% target, reflecting the stubbornness of inflation this year after a sharp deflationary trend in 2023.

It is expected that inflationary pressure will come from many aspects. However, the expected rise in home prices is particularly troublesome for policymakers who expect housing costs to fall this year.

Respondents to the survey said they expect median house prices to rise 3.3% next year, up 0.3 percentage points from levels that have remained stable for seven months. It was also the highest level since July 2022 and was driven by those with a high school degree and below. This lower-income group is particularly worrisome to Fed officials in early 2022, when inflation begins to surge.

In addition to expecting house prices to rise, respondents also expect rents to rise 9.1%, an increase of 0.4 percentage points from the previous month.

Fed officials again kept interest rates on hold at their latest meeting and said they needed to see more convincing evidence that inflation is returning to their 2% target before cutting rates.

Fed Vice Chairman Philip Jefferson said on Monday that policymakers "will continue to look for more evidence that inflation will return to the 2% target, and until we find that evidence, I would argue that we will keep the policy rate at a restrictive level." The range is appropriate.”

Consumers expect health care spending to rise 8.7% next year, 0.6 percentage points higher than the March survey. They expect food prices to rise 5.3% (up 0.2 percentage points from a month ago), gasoline prices to rise 4.8% (up 0.3 percentage points), and college education prices to rise 9% (up 2.5 percentage points).

Employment expectations in the survey were mixed, with the unemployment rate still rising even as the likelihood of losing a job fell. However, mobility prospects have declined, with 50.9% expecting to find work quickly after losing their current job, the lowest level since April 2021.

Two days later, the closely watched U.S. Department of Labor will release its Consumer Price Index (CPI) report on Wednesday. Economists surveyed by Dow Jones expect CPI for all items in April to increase by 3.4% year-on-year, down 0.1 percentage point from March. Core inflation, which excludes food and energy, is expected to reach 3.6% in 12 months.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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New York Fed survey shows rising inflation outlook, driven by expected rise in housing costs

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