The Fed's Three Year Inflation Outlook is at Its Highest Since 2022

In April, Americans’ expectations for medium-term inflation climbed to their highest level in nearly three years, even as their confidence in the job market took a notable hit, according to the latest monthly survey released by the Federal Reserve Bank of New York.

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Specifically, the survey showed that median expectations for inflation three years ahead increased to 3.2%, marking the highest reading since July 2022. While short-term price expectations — those for the next year — remained unchanged, longer-term inflation projections edged slightly downward to 2.7%.

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Federal Reserve officials pay close attention to how Americans view future price pressures, as these expectations help shape their decisions on interest rates and other monetary policy tools. Analysts are particularly interested in how policy moves under President Donald Trump, especially concerning trade, might trigger sustained inflation. The unclear scope and duration of tariffs likely contributed to the public’s growing uncertainty about where inflation is headed.

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Last Wednesday, the U.S. central bank decided to keep interest rates steady, citing a still-strong economy but also noting that the outlook has become cloudier. Yet, despite the overall resilience of the economy, recent surveys have painted a darker picture when it comes to household sentiment, with consumers growing more anxious about both inflation and their personal finances.

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Fears of an economic downturn have intensified, and many economists believe that the ongoing tariffs will both push prices higher and dampen economic growth. Federal Reserve Chair Jerome Powell and his fellow policymakers have acknowledged that they now see a greater risk of facing a difficult combination: higher inflation coupled with rising unemployment.

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One of the most concerning findings from the New York Fed’s survey, released Thursday, was the sharp decline in consumers’ confidence about their ability to find a job within the next three months.

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This measure fell to its lowest point since March 2021, with the most pronounced drop seen among Americans over the age of 60. Additionally, the mean probability that the unemployment rate will be higher one year from now rose to its highest level since April 2020 — at the very start of the pandemic.

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As worries about the economy and the job market mount, Americans’ outlook on their own financial futures has become gloomier. More than one-third of households now expect their financial situation to be worse a year from today, marking the highest reading since 2022. Similarly, a comparable share of respondents said they already see their current financial situation as worse than it was a year ago.

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The survey also revealed rising concerns about household debt. The perceived likelihood of missing a minimum debt payment over the next three months increased, signaling that more families are feeling financially stretched. Meanwhile, expectations for household income growth fell to their lowest point since April 2021, adding to the sense of financial strain.

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On the spending side, consumers anticipate paying more across several key categories in the year ahead. They expect gas prices, college expenses, and medical costs to increase. Notably, expectations for rent prices jumped significantly — rising 1.8 percentage points to 9%. This sharp climb underscores how housing costs continue to weigh heavily on American families’ budgets.

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Interestingly, despite the recent turbulence in financial markets, Americans’ views on the stock market have become more optimistic. The survey found that the average perceived probability that U.S. stock prices will rise over the next 12 months has actually increased. This suggests that, even amid broader economic uncertainty and declining confidence in personal finances, some consumers still believe that equities might perform well in the near term.

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In summary, the New York Fed’s April survey paints a mixed but increasingly cautious picture of how Americans are feeling about their financial prospects and the broader economy. While inflation expectations in the medium term have risen sharply, reflecting uncertainty around tariffs and policy shifts, short-term inflation views remain steady, and long-term expectations have ticked down slightly.

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At the same time, households are growing more pessimistic about the job market and their own financial stability. Rising concerns about unemployment, falling income expectations, and increased anxiety over debt payments all point to growing financial stress among American consumers. Yet, despite these challenges, there is still some optimism when it comes to stock market prospects, suggesting that Americans have not entirely lost faith in the resilience of financial markets.

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Overall, the survey highlights the delicate balancing act facing the Federal Reserve as it navigates a complex economic environment shaped by policy shifts, global trade tensions, and the ongoing threat of higher inflation paired with weaker job growth.

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