Americans expect smaller rises in inflation in the short and long term, the New York Federal Reserve said in a report Monday.
The regional federal bank said in its November survey on consumer expectations that respondents expect inflation to be 5.2% one year from now, down from 5.9% in the last survey. It was the largest monthly drop on record, the bank said.
In three years, consumers see inflation settling at a rate of 3%, down slightly from 3.1% in October.
The Fed is closely monitoring public views on the inflation outlook.
“They matter because actual inflation depends, in part, on what we expect from it,” Brookings Institution economists wrote in a recent report.
In other words, inflation expectations have been a leading indicator of future inflation.
Fed Chairman Jerome Powell told reporters in May that the central bank “cannot allow inflation expectations to become unanchored.”
That’s one reason why the Fed has been raising interest rates at a rapid pace this year. The Fed is expected to raise its key rate by a further half percentage point on Wednesday, within a range of 4.25% to 4.5%. The key rate was close to zero in March.
There: 5 things to watch as the Fed makes its interest rate decision
Treasury Secretary Janet Yellen told 60 Minutes that she expects inflation to be much lower by the end of next year.
The New York Fed survey also showed that Americans don’t expect their homes to continue to appreciate at a rapid pace.
Expectations for house price growth fell by 1 percentage point to 1% in November. This is the lowest reading since May 2020.
Existing home prices have increased by 45% during the pandemic, but have started to decline month after month.
