Federal Reserve Survey: U.S. one-year inflation expectations rose in September, while labor market expectations continue to deteriorate

A monthly survey by the New York Federal Reserve shows that consumers expect inflation to rise in the coming year, with signs indicating that low- and middle-income households are bearing the brunt of rising prices. Specifically, consumer expectations for price increases over the next year rose to 3.4% in September, up from 3.2% the previous month. The increase was most pronounced among households with annual incomes below $50,000 and among those with education levels not exceeding high school. Expectations for annualized inflation over the next five years also slightly increased from 2.9% to 3%; while expectations for inflation over the next three years remained unchanged at 3%. Federal Reserve officials are closely monitoring consumer inflation expectations to assess whether tariffs will lead to a one-time price increase or result in more persistent inflationary pressures. After lowering interest rates by 0.25 percentage points last month, a slim majority of policymakers support further rate cuts this year, potentially two or more. However, some Federal Reserve officials are cautious about further rate cuts, as core inflation levels remain about 1 percentage point above the Fed's 2% target. The New York Fed's survey aligns with findings from other institutions, all indicating that as inflation remains high and corporate hiring slows, consumer confidence in the economy is deteriorating. The New York Fed's survey also shows that consumer expectations regarding the labor market continue to worsen. The likelihood of unemployment in the next 12 months has increased, and expectations for the overall unemployment rate have also risen. On the other hand, after experiencing the largest monthly decline on record in August, consumer expectations for finding a job in the next three months slightly rebounded in September. Regarding personal financial situations, opinions among households vary. More respondents indicated that their circumstances have improved compared to a year ago, but there has also been an increase in those who believe their situation will worsen in the coming year