US consumers see inflation rising, yet financial outlook improves

In a recent survey conducted by the New York Federal Reserve, U.S. consumers indicated an expectation of higher inflation rates in the future, with projections for the next year at 3%, up from 2.9% in October. Over a three-year span, inflation expectations rose to 2.6% from 2.5%, and looking five years ahead, the anticipated rate is 2.9%, an increase from the previous month's 2.8%.

Despite these inflation concerns, there was a notable optimism regarding personal financial situations. Many respondents anticipate improvements in their financial status, marking the highest level of positive financial expectations since February 2020. Conversely, the proportion of those who foresee a decline in their financial well-being dropped to its lowest since March 2021.

The survey, which gathered responses throughout November, revealed variances in inflation outlook based on education levels. Those with a college degree predicted higher inflation rates, while those without one anticipated a decrease. This divergence underscores the impact of educational attainment on economic perceptions.

Contradictory to the inflation expectations, consumers forecast that prices for gasoline, rent, and food would weaken over the next year. However, they also expect higher costs for medical care and college education. Home price growth projections remained steady at 3% for November.

The survey's release coincides with anticipated policy changes under President-elect Donald Trump, who is expected to implement measures potentially leading to increased price pressures. These include imposing large tariffs and deporting immigrants, alongside tax and spending plans that might significantly raise deficits.

The Federal Reserve is anticipated to reduce its benchmark overnight interest rate by 0.25% during its policy meeting on December 17-18. The future beyond that point remains uncertain, given the unpredictability of Trump's policy agenda and persistent inflation pressures.

Additionally, the survey found that while current financial situations and credit access perceptions remained stable, optimism for the economy's future and personal income growth increased. However, there was a slight softening in the job market outlook.

In an unexpected twist, survey respondents lowered their expectations for government debt growth to the lowest since February 2020. This is in contrast to economists' predictions of higher deficits under Trump's administration. Moreover, households anticipate a higher probability of increased interest rates on savings accounts in the coming year, which stands in opposition to the expected trajectory of Federal Reserve policy that leans towards lower interest rates.

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Source: Investing.com