US households continue to anticipate rising inflation: New York Fed survey

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A new survey from the Federal Reserve Bank of New York noted that US households continue to raise their expectations about the pace of price increases over the next year.

The New York Fed noted that in August, the median expectation of the inflation rate over the next year rose to 5.2% – the highest since the launch of the Survey of Consumer Expectations. consumers in 2013.

Over a three-year horizon, inflation expectations stood at 4.0%, also a high series for the survey.

The New York Fed's Survey of Consumer Expectations asks about 1,300 heads of households about their overall inflation and price expectations in categories such as food, gasoline, housing and shopping. 'education. Source: Federal Reserve Bank of New York

The New York Fed’s Survey of Consumer Expectations asks about 1,300 heads of households about their overall inflation and price expectations in categories such as food, gasoline, housing and shopping. ‘education. Source: Federal Reserve Bank of New York

Survey-based measures of rising inflation expectations test the resolve of policymakers who maintain that accelerating price increases are likely a temporary phenomenon.

Officials at the Federal Reserve, the central bank charged with ensuring price stability, have called the virus-induced supply chain disruptions as inflationary pressures that cannot last forever.

“Inflation at these levels is, of course, a source of concern,” Fed Chairman Jerome Powell said on August 27. “But that concern is tempered by a number of factors that suggest these high readings are likely to prove temporary.”

The Fed’s target for inflation (not inflation expectations) is 2%. But rising inflation expectations were seen as a factor that could push up current inflation. Fed officials concerned about the downside risk of soaring inflation are closely monitoring surveys and market readings to ensure that expectations do not become “off” from the Fed’s target.

“We still see them entrenched,” Philadelphia Fed Chairman Patrick Harker told Yahoo Finance on Aug. 27. “But it is clearly a risk that inflation will be higher than we would like.”

Market-based measures of inflation expectations, by comparison, suggested more moderate expectations for the pace of price increases. Bets placed on the inflation-protected Treasury securities market have consistently suggested five-year inflation expectations of around 2.5%.

A key measure of market-based inflation, the 5-year breakeven point, measured the spread between the 5-year U.S. Treasury and 5-year Treasury Inflation-Linked Constant Maturity Notes (or TIPS) . Credit: Federal Reserve Bank of Saint-Louis

A key measure of market-based inflation, the 5-year breakeven point, measured the spread between the 5-year U.S. Treasury and 5-year Treasury Inflation-Linked Constant Maturity Notes (or TIPS) . Credit: Federal Reserve Bank of Saint-Louis

For the Fed, officials are debating when to start cutting its extraordinarily accommodative monetary policy while inflationary pressures remain high. Powell and other Fed officials have telegraphed that the first step, which would involve slowing down its aggressive asset-buying program, should begin later this year.

The next central bank policy announcement will be on September 22.

Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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