Inflation expectations drift back down to pre-tariff levels, New York Fed survey shows

The latest survey released by the New York Federal Reserve has shown a significant shift in consumer expectations regarding inflation, particularly in response to President Donald Trump’s tariffs. Earlier concerns about a sharp inflation spike have now subsided, with respondents in June predicting inflation to remain at 3% over the next 12 months. This is the same level as it was before Trump took office and initiated trade disputes.

The survey revealed a 0.2 percentage point decline from May, marking a retreat from the peak of 3.6% seen in March and April. This change in sentiment can be attributed to Trump’s shift from imposing across-the-board tariffs to engaging in negotiations with trading partners. Despite this, most inflation readings have not reflected the impact of tariffs, with the consumer price index only rising by 0.1% in May.

While overall inflation expectations have eased, consumers still anticipate price increases in specific categories. Gas prices are expected to rise by 4.2%, medical care by 9.3% (the highest since June 2023), and both college education and rent by 9.1%. Food price expectations remain unchanged at 5.5%.

The survey also highlighted improvements in employment metrics, with a decrease in the expectation of a higher unemployment rate and a decline in the average expectation of job loss. These positive trends suggest increased confidence in the labor market among consumers.

Overall, the survey underscores the impact of trade policies on consumer expectations and inflation. Despite initial concerns, the current outlook remains relatively stable, reflecting a cautious optimism among consumers. As the economy continues to navigate the challenges posed by tariffs and trade negotiations, monitoring consumer sentiment will be crucial in assessing the broader economic landscape.