By Michael S. Derby
NEW YORK (Reuters) – Near-term expectations for the future of inflation in the U.S. economy last month fell to levels last seen nearly two years ago, the Federal Reserve Bank of New York said Monday.
In its latest Survey of Consumer Expectations, the bank said that in February, respondents projected inflation a year from now to stand at 4.2%, a notable drop from January’s 5%. The year ahead reading was the lowest since the 4% seen in May 2021.
Meanwhile, the expected level of inflation three years from now held steady at 2.7%, matching the level last seen in October 2020, while five years from now, expected inflation is seen hitting 2.6%, from January’s 2.5%.
The bank’s survey arrived as the Federal Reserve’s next policy meeting looms. The Fed is set to meet on March 21-22 and until the weekend, the gathering had widely been expected to result in a rate rise, as the central bank presses forward with its effort to cool high levels of inflation.
But the failure of Silicon Valley Bank, which forced government authorities to offer new liquidity support to the banking system, has scrambled the outlook for monetary policy and has driven some analysts, like Goldman Sachs, to argue against a rate rise for the upcoming Fed meeting.
Further complicating the monetary policy outlook, the government is set to report on the state of consumer prices in February on Tuesday. A high reading there could renew pressure on the Fed to boost rates again.
The New York Fed report was conducted ahead of the SVB situation and does not reflect its impact.
On its own, the New York Fed survey was a positive development for the central bank, as officials believe the public’s expected path of inflation helps drive the actual level of price pressures. Fed officials have long flagged the relative stability of longer-run inflation expectations as a sign the public remains confident the central bank will bring price pressures back to the 2% target.
The report found expectations of softer prices across a number of key components. Households last month saw declining price pressures for gasoline, food, rent, medical care and college. The report also found the public holding a more upbeat view on the job market, as well as improved views over household finances.
The report said households foresee a 1.4% rise for housing prices, up from 1.1% in January. But the bank noted last month’s reading remains well below the 12-month average of an expected 3.4% rise in home prices.
(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)
