Short-term inflation expectations for US consumers fell to a one-year low in September and expectations for the next five years improved, easing fears that the Federal Reserve could raise interest rates by a full percentage point. next week, according to a University of Michigan poll on Friday, Sept. 16.
The survey came on the heels of data showing a surprise rise in consumer prices in August from expectations, which raised concerns about the entrenchment of high inflation.
US inflation fell to 8.3% in August, compared with an expectation of 8.1%.
Weakening expectations for inflation are mitigating calls for a 100 basis point hike next week, said Jennifer Lee, chief economist at BMO Capital Markets in Toronto.
disregard expectations
The University of Michigan survey of one-year inflation expectations reading fell to 4.6%, the lowest level since September 2021, from 4.8% in August.
The survey’s five-year inflation forecast fell to 2.8%, falling below the 2.9% -3.1% range for the first time since July 2021.
“The Fed is likely to find some reassurance that low inflation expectations don’t seem out of reach,” said Conrad de Cuadros, Brean Capital’s chief economic adviser in New York.
Following the release of strong consumer price readings for August, financial markets expected the US Federal Reserve to raise the benchmark interest rate by 75 basis points at the policy meeting on September 20-21, with a 100 point chance.
The US Federal Reserve raised interest rates by three quarters of a percentage point in its June and July meetings. Since March, it has raised this rate from almost zero to the current target range of 2.25% -2.50%.
Little fuel
The University of Michigan survey showed that consumer sentiment improved slightly in September, driven by falling gasoline prices.
Its preliminary reading on the overall consumer confidence index was 59.5 this month, up slightly from 58.6 in August.
Economists interviewed by Reuters had expected a preliminary reading of 60.0 in September.
“With gasoline prices continuing to drop, sentiment should increase further,” said Scott Hoyt, chief economist at Moody’s Analytics in Pennsylvania.
“However, fears of a recession, higher interest rates and an impending decline in the labor market could limit the improvement in confidence,” he added.
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