Inflation Stable, Job Worries Rise
New York Fed Survey Shows Stable Inflation Expectations But Rising Labor Market Worries
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Key Points
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The labor-market concerns emerged despite August payrolls increasing by 162,000 and the unemployment rate holding at 4.1%, underscoring the contrast between current employment data and consumers’ forward-looking anxiety.
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Uncertainty surrounding one-year inflation expectations increased to 2.9% from 2.7%, indicating that consumers were not only expecting elevated inflation but were also less certain about the outlook.
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The deterioration in unemployment expectations was broad-based, appearing across age, income and education groups rather than being concentrated among a particular demographic.
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Expected home-price growth declined by 0.2 percentage point to 3%, contrasting with the increase in anticipated gasoline-price growth.
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New York Fed President John Williams said inflation expectations were “well-anchored” and compensation growth was “pretty contained,” adding that inflation appeared to be moving down slowly as tariff effects receded; the readings were being watched ahead of the Federal Open Market Committee’s policy decision.
U.S. consumer inflation expectations held steady in August, with one-year expectations at 3.6% and five-year expectations at 3%, both remaining well above the Federal Reserve's 2% target NY Fed Survey. But behind the stable inflation picture, a troubling shift emerged: consumers grew significantly more worried about jobs, with unemployment concerns hitting their highest level since April 2020 NY Fed Survey.
The divergence reveals a complex moment for the Fed. Inflation expectations aren't rising further—a sign the central bank's credibility holds. Yet consumers increasingly fear layoffs and job scarcity ahead, even as August payrolls grew by 162,000 and unemployment stayed at 4.1% NY Fed Survey. This disconnect between today's labor market strength and tomorrow's anxieties will weigh heavily on September's policy decision.
Inflation Stays High but Uncertainty Climbs
One-year inflation expectations remained flat at 3.6%, while three-year expectations edged down slightly to 3.2% American Banker. The five-year outlook stayed at 3%—nearly 50% above the Fed's comfort zone. More troubling: uncertainty about near-term inflation jumped to 2.9% from 2.7%, suggesting consumers feel less confident about the inflation road ahead NY Fed Survey.
Gasoline-price expectations rose, reflecting energy-cost worries gripping household budgets. By contrast, expected home-price growth slipped 0.2 percentage points to 3%. Fed President John Williams acknowledged the data, saying inflation expectations remained "well-anchored" but cautioned that compensation growth was "pretty contained" as tariff effects slowly faded NY Fed Survey.
Labor Market Anxiety Spreads Across All Households
The perceived likelihood of higher unemployment in one year hit its highest point since the 2020 crisis—a stark warning from consumers despite solid job gains NY Fed Survey. Confidence in finding a new job after a layoff also declined sharply. Notably, the deterioration cut across all demographic groups: young and old, rich and poor, college-educated and not NY Fed Survey.
Even the small bright spot—fewer workers expecting to lose their current jobs—couldn't offset broader pessimism. Consumers pulled back on optimism about their finances and access to credit. The message is clear: households worry less about inflation rising further but increasingly fear economic turbulence ahead Connect Money.
The Fed Faces a Split Signal Before September Meeting
Stable inflation expectations typically call for patience on rate cuts. But soaring job anxiety suggests the labor market may be weakening—a reason to cut rates and support employment TipRanks. The Fed must balance its dual mandate: controlling inflation while sustaining jobs American Banker.
Williams' cautious tone—anchored expectations but vigilance on tariff-driven price pressures—hints the Fed won't rush. Yet this August survey may be the last clear reading before the committee meets to decide rates. Consumer anxiety about jobs, if validated by weaker labor reports ahead, could force the Fed's hand faster than current inflation readings suggest BigGo Finance.
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