October 15, 2019 / 3:25 PM / a month ago

U.S. consumers see lower inflation three years out: New York Fed survey

WASHINGTON (Reuters) - The inflation outlook among U.S. consumers remained muted in September, rising slightly over the near term but falling to the lowest level on record over a three-year time frame since the New York Federal Reserve began its monthly survey of consumer expectations in 2013.

FILE PHOTO: People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

The latest survey results, released on Tuesday, showed a boost in confidence about the state of the job market, and in expectations for wage growth and access to credit - a sign of household resilience alongside weak September job growth.

At the median, consumers expected earnings growth over the next year would be 2.5%, up from 2.3% in the August survey of 1,300 households. The perceived risk of losing a job over the next year fell to 13.4%, from 14.2%.

The expected probability that the unemployment rate would increase over the next year remained flat, at 38.4%.

The outlook for household consumption growth remained unchanged from August, with consumers at the median expecting their spending to rise 3.3%.

Those results bolster what U.S. Federal Reserve officials expect will be continued support for the U.S. economy’s 10-year recovery from rising household income and continued high levels of employment.

The inflation result, however, is more problematic for a central bank that has fallen short of its 2% inflation target since it was first established in 2012.

Consumer expectations about prices in the coming year, which are measured on a slightly different scale than the Fed’s 2% goal, rose slightly to 2.5% in September, from 2.4% in August.

Over a three-year time frame, however, consumers expected inflation of just 2.4%, slightly below the August result.

The Fed’s preferred measure of inflation stood at 1.8% as of August, excluding the more volatile measures of food and energy costs.

Weak inflation has led some Fed policymakers to call for further reductions in the central bank’s target interest rate beyond the two quarter-percentage-point cuts approved in July and September.

Investors expect the Fed to reduce rates at least once more this year. Rate cut advocates at the central bank argue the Fed should do more to prove it is serious about meeting its inflation target.

Fed officials watch estimates of consumer expectations closely, concerned that falling expectations mean households might be losing faith in the strength of the economy, and losing confidence in the central bank’s ability to meet its inflation target.

Reporting by Howard Schneider; Editing by Paul Simao

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