US households now expect inflation to run at 3.9% over the next year, the highest reading in nearly three and a half years, the New York Fed's September Survey of Consumer Expectations shows. The jump complicates the Federal Reserve's rate path and feeds into the backdrop equity indices such as the S&P 500 must trade against.
One-year inflation outlook hits 3.9%
The New York Fed's Survey of Consumer Expectations found that households see inflation at 3.9% a year from now. That figure is up from 3.6% in August. It is the highest level since May 2023, when the reading stood at 4.1%. Household spending growth over the next year is also expected to reach 5.5%, up 0.3 percentage point from August and the highest since May 2023.
Longer horizons held steadier. The three-year outlook ticked up to 3.3% from 3.2%, while the five-year view stayed unchanged at 3%. The survey, launched in June 2013, polls roughly 1,200 households on a rotating panel basis.
Fed officials weigh a cautious path
Households blamed rising costs across gas, food, rent, medical care and college expenses for the deterioration. Minneapolis Fed leader Neel Kashkari linked the souring mood to prices: according to Reuters, he said "I still think it's inflation" is weighing on sentiment.
Officials raised the benchmark rate by a quarter point last month to a target of 3.75%-4%. Investors are now eyeing the December FOMC meeting for a possible next move. Markets, however, largely expect the Fed to hold steady at its meeting later in October, after August inflation came in lower than expected, according to the Fed's preferred gauge.
Rate path still a factor for stocks
Bond markets are pricing a tougher road ahead. Fed funds futures imply a rate of 5.58% in five years, well above the current target. The five-year Treasury breakeven has climbed to around its highest level of the year at 2.35%.
A shift in interest rate expectations of this kind is closely watched by equity investors, since the path the Fed takes feeds directly into how indices like the S&P 500 price future earnings. For now, consumers expect near-term inflation to run hot even as their longer-term view stays mostly anchored.
Sources: CNBC, Investing.com, InvestingLive
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