By Michael S. Derby
(Reuters) -Americans’ longer-term inflation outlook deteriorated in July even as households boosted their views on the current and future state of their respective financial situations, according to data released on Thursday by the New York Federal Reserve.
In its latest Survey of Consumer Expectations, the regional Fed bank said the expected level of inflation five years from now stood at 2.9% in July, rising from 2.6% in the prior month and the highest reading since March. Meanwhile, expected inflation a year from now rose to 3.1% from 3% in June, while three-year-ahead expected inflation held steady at 3%.
The rise in longer-run expectations, coming on the heels of a short cooling trend, may get the attention of policymakers who are trying to understand how President Donald Trump’s aggressive tariff increases will affect the outlook.
The increases in import taxes are widely expected to push up inflation, with some data already showing that is happening. But there are big questions as to whether the increase will be a one-off impact or something more persistent.
Fed Chair Jerome Powell, speaking after the end of a two-day policy meeting last week, said “near-term measures of inflation expectations have moved up, on balance, over the course of this year on news about tariffs.” He added that “beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal.”
The central bank left its benchmark overnight interest rate in the 4.25%-4.50% range last week.
Some Fed policymakers believe the tariff price hit will be a one-time event, and they favor an interest rate cut to offset rising risks to the job market. But most central bank officials have been reluctant to cut rates because of a perceived risk that the long rollout and rapid shift in tariffs could lead to more lasting inflation.
Forecasters at Goldman Sachs said in research released on Thursday that “over the next few months, we expect tariffs to continue to boost monthly inflation” and will push price pressures well over the Fed’s target by the end of this year, with the Personal Consumption Expenditures Price Index excluding food and energy items at a year-over-year gain of 3.3% by December, relative to 2.8% in June.
In its report on Thursday, the New York Fed found that home prices were expected to rise 3% on a year-ahead basis, while expected future inflation levels across a range of other measures were mixed.
It said labor market views also were mixed in July and the expectation that unemployment will be higher a year from now hit its lowest level since January.
Households said credit is harder to get but will be easier to obtain in a year. Survey respondents also said their current and expected financial situations improved in July from June.
(Reporting by Michael S. Derby; Editing by Paul Simao)
