U.S. consumers grow more uneasy about jobs & finances as high inflation outlook holds steady, NY Fed finds

U.S. consumers are turning more pessimistic about the job market and their personal finances in August, even as their expectations for inflation remained largely unchanged, pointing to growing economic unease ahead of the Federal Reserve’s September policy meeting, Reuters reported.

The New York Federal Reserve’s latest Survey of Consumer Expectations showed households continued to expect inflation at 3.6% a year from now and 3% over the next five years. Expectations for inflation three years ahead edged down to 3.2% from 3.3% in July, according to the survey.

But the relatively stable inflation outlook masked a deterioration in how consumers viewed the broader economy.


Respondents raised their expectations for where the unemployment rate will stand a year from now to the highest level since April 2020, when the U.S. economy was reeling from the COVID-19 pandemic. The increase was broad-based across age, income and education groups, the New York Fed said, according to Reuters.

Consumers were not necessarily more worried about losing their own jobs. The perceived probability of losing a job actually fell in August from July. At the same time, however, they became less confident about finding new employment if they were to lose their jobs involuntarily.

That combination points to a more fragile view of the labour market, with households appearing less confident about their ability to recover from a job loss even as immediate fears of unemployment eased.

Households also became more pessimistic about their current and future financial situations. Their assessment of access to credit, both now and a year from now, weakened as well, Reuters reported.

Inflation expectations offered little relief. Consumers continued to see inflation running well above the Federal Reserve’s 2% target and expected gasoline prices to be higher a year from now.

The survey comes a week before the Fed’s September 15-16 policy meeting, putting the consumer outlook in focus as policymakers weigh whether inflation remains persistent enough to warrant tighter monetary policy.

The central bank’s benchmark overnight interest rate is currently in the 3.50%-3.75% range. The August Consumer Price Index, due on Friday, is expected to be a key input into the Fed’s decision, with several officials suggesting the report could prove decisive, Reuters reported.

Fed Governor Christopher Waller, speaking at a Reuters NEXT Newsmaker event last Thursday, said, "if there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level."

But Cleveland Fed President Beth Hammack has taken a more hawkish stance. In a LinkedIn post on Friday, Hammack, who voted for a rate hike at the Fed’s late-July meeting, said that given the inflation pressures facing people in her district, “it's time to act,” .

The contrasting views underline the challenge facing the Fed. Consumers are becoming less comfortable with their jobs, finances and access to credit, but inflation expectations remain elevated. The upcoming CPI report could therefore determine whether policymakers put greater weight on emerging weakness among households or the still-persistent threat from inflation.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)