Americans became less concerned about inflation and more optimistic about job prospects in January, according to a report released Monday by the Federal Reserve Bank of New York.
The bank’s Survey of Consumer Expectations revealed that one-year inflation expectations dropped to 3.1% in January from 3.4% in December. Three-year and five-year inflation expectations remained steady at 3%.
The labor market outlook improved as respondents reported a lower perceived chance of losing their jobs and better prospects for finding new employment if needed. Earnings expectations also increased compared to December, though expected income levels a year from now declined.
Despite the improved hiring outlook, survey participants still predicted a higher unemployment rate a year from now than they did in December’s survey.
The report showed mixed financial sentiment, with respondents viewing credit as more difficult to obtain in the future. They also downgraded assessments of both their current and future financial situations compared to December.
The decline in near-term inflation expectations likely provides reassurance to Federal Reserve policymakers as they manage ongoing price pressures. The Fed reduced its interest rate target range by 75 basis points last year to between 3.5% and 3.75%, aiming to support the job market while maintaining enough economic restraint to reduce inflation.
After holding rates steady in January, some Fed officials have characterized the current labor market as a "low-hire, low-fire environment" and argued that short-term credit costs need to be lowered to prevent deeper employment problems.
Fed officials anticipate inflation will decrease throughout the year, partly due to expected reductions in tariff pressures. Their confidence in inflation returning to target levels is partially based on the stability of longer-term inflation expectations.
Source: uk.finance