Fed survey: Inflation expectations steady, signaling confidence in US economic stability

Inflation Expectations Return to Early Year Levels

The 10 yuan futures trading applatest monthly "Survey of Consumer Expectations" published by the New York Federal Reserve on Tuesday shows that U.S. consumer inflation expectations for the next year remain at 3%, returning to the level before Trump's inauguration in January. This is down 0.2 percentage points from May and has significantly receded from the peaks of 3.6% observed in March and April. This indicates that the market's previous concerns about Trump’s high tariff policies potentially triggering severe inflation rapidly have essentially dissipated.

Earlier this year, Trump significantly pushed his tariff policies, announcing a comprehensive 10% tariff on multiple countries and proposing a "reciprocal tax" scheme, which once caused market concerns about surging prices. However, since April, Trump’s stance has softened, shifting towards resolving trade issues through negotiations, effectively cooling down the tariff rhetoric.

Official Inflation Data Remains Moderate

Despite the ongoing concerns triggered by tariff policies, data indicates that overall inflation remains moderate and controllable. The data released by the U.S. Bureau of Labor Statistics shows that in May, the Consumer Price Index (CPI) rose by only 0.1% month-over-month, with an annualized inflation rate of 2.4%. Although slightly above the Federal Reserve's 2% target, it remains within a moderate and controllable range.

The Federal Reserve survey results indicate that consumer inflation expectations for the next three years remain at 3%, while the five-year inflation expectation stands at 2.6%, both showing no significant fluctuations.

High Expectations for Specific Living Costs

Although overall inflation expectations are stabilizing, U.S. consumers still maintain high expectations for the rising costs of certain key living expenses. The survey reveals that respondents expect gasoline prices to increase by 4.2% over the next year, with anticipated medical cost increases reaching as high as 9.3%, the highest since June 2023. Tuition fees for universities and rent are both expected to rise by 9.1%, while food prices are projected to increase by 5.5%, unchanged from last month.

These figures suggest that under generally controllable inflation, the pricing pressure on medical, education, and living costs continues to affect family budgets and spending habits.

Positive Signals from the Job Market

Employment data shows that the resilience of the U.S. economy remains intact, with the likelihood of an increase in the unemployment rate over the next year dropping by 1.1 percentage points. This suggests stable development in the labor market. Meanwhile, the proportion of respondents worried about unemployment has fallen to 14%, the lowest level since December of last year, reflecting a gradual restoration of consumer confidence.

Future Implications

As Trump's high tariff policies gradually take a backseat, U.S. inflation expectations are stabilizing, which helps alleviate market fears of a forced aggressive tightening of monetary policy. In the future, the Federal Reserve might continue to maintain a cautious pace of policy adjustment after observing more economic data, providing a stable environment for the economy.

At the same time, although tariffs have yet to significantly drive up overall prices, the expected increase in prices in sectors like healthcare and housing remains a concern. This could exert sustained pressure on some low- and middle-income households, becoming a critical observation point for the Federal Reserve when formulating future monetary policies.

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