Americans see higher inflation ahead: NY Fed

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Fed to remain ‘worried’ about inflation if job market remains red-hot: Ben Levisohn

Barron’s Roundtable panel welcomed Carleton English, Ben Levisohn, and Andrew Bary to provide professional analysis of the recent market rally as investors start to see signs of cooling inflation.

Americans are bracing for higher inflation in the short, medium and longer terms, a monthly survey shows. However, they see the rate of price increases moderating over time.

The latest read on consumer inflation expectations by the Federal Reserve of New York shows:

 Inflation Expectations Jump

  • One-year inflation expectations increased by 0.5 percentage points to 5.9%
  • Two-year inflation expectations went up by 0.2 percentage points to 3.1%
  • Five-year inflation expectations rose by 0.2 percentage points to 2.4%

The deterioration in the expected path of inflation last month may create new challenges for the Federal Reserve, which is now engaged in a very aggressive campaign of rate rises aimed at lowering price pressures from their highest readings in 40 years back to the official 2% target.

Central bank officials contend that where the public sees inflation in the future has a strong influence on current inflation readings. The relative stability of expected levels of inflation, mainly over longer horizons, has given central bank officials confidence that the public retains faith in the Fed to get inflation down over time.

Gas price gloom

The October survey further showed expectations for home price growth were unchanged, while Americans think gas prices will increase sharply. The median expected change in gas prices rose by 4.3 percentage points to 4.8% — the largest one-month increase on record.

AAA says the average price for gas is $3.77 per gallon, down from $3.80 last week, but up 36 cents from a year ago.

GAS PRICES TO REMAIN HIGH POST MIDTERMS

Unemployment anxiety

Signage at a Job News USA career fair in Louisville, Kentucky, June 23, 2021.  (Luke Sharrett/Bloomberg via Getty Images / Getty Images)

Anxiety over unemployment reached the highest level since April 2020. Mean unemployment expectations — or the mean probability that the U.S. unemployment rate will be higher one year from now — increased to 42.9%, the highest reading since April 2020.

Last week first time claims for unemployment rose by 7,000 to 225,000.

Though job growth is slowing, the labor market remains extremely tight. The government reported that nonfarm payrolls increased by 261,000 in October, the smallest gain since December 2020. Employment growth has averaged 407,000 per month this year compared with 562,000 in 2021.

The unemployment rate rose to 3.7% in October from 3.5% in September. Still, there were 1.9 job openings for every unemployed person at the end of September.

The Labor Department release November job figures on Dec. 2.

Income outlook reaches new high

Black Friday shoppers wearing face masks wait in line to enter a store at the Glendale Galleria in Glendale, California, Friday, Nov. 27, 2020. (AP Photo/Ringo H.W. Chiu, File / AP Newsroom)

OCTOBER INFLATION REPORT LIKELY TO SHOW CONSUMER PRICES INCREASED AGAIN

Household income growth expectations increased to a new series high, while households’ expectations about credit access one year from now worsened.

The median expected growth in household income increased to 4.3%, a series high, from 3.5% in September. The increase was most pronounced for those over the age of 60 and those with annual household incomes under $50k.

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Median household spending growth expectations increased to 7.0% from 6.0%. The increase was broad-based but most pronounced for respondents with no more than a high school education.

Reuters contributed to this report.

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