The New York Fed’s June Survey of Consumer Expectations revealed a rise in short-term inflation expectations, with the 1-year outlook increasing to 3.7% from 3.5% in May, marking the highest level since September 2023 [1]. The survey also indicated that consumers expect inflation to reach 3.3% over the next three years, up from 3.1% previously, while the 5-year expectation remained steady at 3% [1].
Despite these higher inflation expectations and a rise in oil prices, market reactions were relatively muted. Futures pricing for a potential Federal Reserve rate hike in September edged up to 47.4% from 39.4% on Monday, but this remains below the 54.7% probability seen a week earlier [1]. The consensus among analysts has not shifted, with expectations still pointing to a negative 0.1% month-over-month reading in the upcoming June CPI inflation report [1].
Prior to the release of the survey, New York Fed President John Williams expressed confidence that headline inflation would decline alongside energy prices and stated that monetary policy was well positioned to achieve the Fed’s dual mandate [1].
CONCLUSION
While US consumer inflation expectations have edged higher, market participants remain cautious, with only a modest increase in the probability of a September Fed rate hike. Consensus still anticipates a negative June CPI print, suggesting that markets are not yet convinced of a sustained inflation uptick.