The Federal Reserve’s aggressive interest rate hikes appear to be driving down consumer expectations for inflation in the coming months and years.
The monthly Survey of Consumer Expectations for July released by the Federal Reserve Bank of New York Monday found “substantial declines” in short, medium, and long-term inflation expectations. One-year inflation expectations plunged from 6.8% to 6.2%, and three-year-ahead expectations dropped from 3.6% to 3.2%.
Still, headline inflation is the highest it has been in four decades. Inflation, as gauged by the consumer price index, clocked in at a blistering 9.1% in the 12 months ending in June. The hotly anticipated CPI numbers for July will be released on Wednesday. They are expected to show that inflation has cooled, with the consensus expectation being that inflation tamped down to 8.7%. The declining price of gas will likely be a big factor bringing down the headline number.
That came after the Fed hiked rates by the same degree in June and conducted two other rate increases in March and May. Many economists believe the Fed waited too long in tightening its monetary policy as the pandemic faded into the rearview mirror. The National Bureau of Economic Research, regarded by the government and economists as the authority on declaring recessions, defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
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