Concerns about inflation and a slowing labor market receded in May, as U.S. consumers expressed improved optimism about their financial outlooks in the year ahead, according to survey data released Monday by the Federal Reserve Bank of New York’s Center for Microeconomic Data.
The New York Fed’s Survey of Consumer Expectations showed that inflation expectations declined over the one-, three- and five-year time horizons in May. One-year inflation expectations fell 40 basis points to 3.2%; three-year projections dipped 20 basis points to 3%; and the five-year inflation outlook declined 10 basis points to 2.6%.
Those inflation projections, though tempered, are still above the Federal Reserve’s preferred rate of 2% inflation over the long run. In April, the Fed’s preferred inflation barometer, the personal consumption expenditures (PCE) price index, climbed 2.1% compared to a year ago, renewing hopes that the Fed may cut interest rates later this year.
Consumers surveyed by the New York Fed predicted household income growth of 2.7% over the next year, a scant 0.1% improvement from April’s survey, which was the lowest reading since April 2021. Meanwhile, the mean perceived probability of losing one’s job over the next 12 months decreased from 15.3% to 14.8%.
Expectations for year-ahead median home price growth declined from 3.3% in April to 3% in May, according to the Fed report, which noted that the decrease was primarily driven by respondents in the West and South regions.
The May survey was conducted amid a backdrop of easing global trade tensions, as President Donald Trump backed down from his most extreme tariff policies to give administration officials time to hash out trade deals.
In April, Trump escalated his trade war with China by increasing tariffs on imports to 145%. China responded by hiking duties on U.S. imports to 125%. Then, on May 12, Trump administration officials announced that the U.S. and China had agreed to reduce those sky-high tariffs to respective rates of 30% and 10% for 90 days to give the countries breathing room to negotiate a long-term agreement.
