US workers also lowered their expectations for raises
American consumers across education and income levels are expecting inflation to slow down in coming months.
In a survey run by the New York Federal Reserve, the median of participants in November said they expected prices overall to move up by 5.2% in the next year and inflation to be 3% per year on average over the next three years. This is a drop of 0.7 and 0.1 percentage points respectively from the same survey in October.
Even more important for the Fed’s interest rate decisions: Americans see prices moving up by an annual 2.3% on average over the next five years. Long-term inflation expectations are what the Fed watches to make sure consumers don’t start pricing in inflation far above the central bank’s 2% target for a long time. This is because the Fed thinks workers have the bargaining power to demand wages consummate with inflation expectations in the long term.
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The lower expectations of inflation seem to have been driven by a massive drop in what Americans are predicting for future house prices. In October, Americans thought home prices would move up by 2%, and now they think home prices will move up by a little more than 1%.
At the same time, Americans also think their raises are only going to hit 2.8% over the next year, while on average they think there is a 42.2% chance that unemployment will be higher this time next year.
