Former Kansas City Federal Reserve Bank President Thomas Honig responded to Jerome Powell’s comments on “Cavuto Coast to Coast” that the Fed isn’t ready to start cutting interest rates.
Americans are bracing for continued high inflation for the next few years, according to a major survey released Monday by the Federal Reserve Bank of New York.
The average forecast is Inflation rate The New York Fed’s Consumer Expectations Survey indicates that consumer confidence is expected to rise 3.2% a year from now, down slightly from the 3.3% recorded in April.
But consumers expect inflation to remain high for the next few years: The survey showed that expectations for three years out remained steady at 2.8%, but expectations for five years out rose to 3% from 2.8% last month.
That’s above the Fed’s 2% target, suggesting inflation is likely to continue. By contrast, in their latest economic forecasts, central bank policymakers project inflation will fall to 2.1% by 2025, before eventually settling around 2% in 2026.
Fed in no rush to cut rates until inflation is overcome, Powell says
A woman shops for groceries at a supermarket on October 19, 2022 in Monterey Park, California. (Photo by FREDERIC J. BROWN/AFP via Getty Images / Getty Images)
Americans expect inflation to decline slightly over the next year, but expect the prices of basic goods like gasoline, food and rent to remain constant, health care costs to rise 0.4% to 9.1%, and college tuition costs to fall 0.6% to 8.4%.
The survey, based on a rotational panel of 1,300 households, Fed policymakers respond to inflation crisis.
The Fed’s inflation strategy weighs heavily on middle-class Americans
That’s because the actual rate of inflation depends, at least in part, on consumer expectations. It’s a kind of self-fulfilling prophecy: if everyone expects prices to rise 3% in a given year, it signals to companies that they can raise prices by at least 3%. Workers will want a 3% raise to offset rising costs.
Federal Reserve Chairman Jerome Powell Policy makers have repeatedly stressed that they are committed to getting inflation back to the Fed’s 2% target before they start cutting rates.
Pedestrians walk near the Treasury Department building on December 30, 2022 in Washington, DC. (Photographer: Ting Sheng/Bloomberg via Getty Images/Getty Images)
Powell said during a panel discussion in mid-May that recent higher-than-expected inflation figures for the first three months of the year suggest it may take longer than previously thought to gain the credibility needed to begin easing monetary policy.
“We didn’t expect this to be a smooth road, but I think the numbers are higher than anyone expected,” he said at the time. “This tells us we need to be patient and wait for restrictive policies to take effect.”
The New York Fed survey also showed growing optimism about the labor market.
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Average Perception Probability Losing a job The unemployment rate for the next 12 months fell 2.7 percentage points to 12.4%, below the 12-month average of 13.2%. Americans are also becoming more optimistic about their chances of finding a new job if they lose their current one.
The average perceived probability of being able to find work rose to 52.2% in May from a three-year low in April.
The survey came ahead of the Federal Open Market Committee’s two-day policy meeting that ends Wednesday. Policy makers are widely expected to keep interest rates on hold at their 23-year high, but investors will be watching closely for clues about the timing of the first rate cuts.
