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.
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.