US Consumer Inflation Expectations Fall as Markets Continue to Price Aggressive Fed Tightening

US Inflation, Federal Reserve – Talking Points

  • US Consumer Inflation Expectations fall to 5.8% in January, from 6.0% in December
  • 3-year inflation expectations fell 0.5% to 3.5% in January

US consumer inflation expectations pulled back in January, potentially hinting that inflation pressures may soon cool. In a survey released by the Federal Reserve Bank of New York, US consumers lowered one year inflation expectations to 5.8% in January, a slight decline from the 6.0% reading in the December survey. 3-year inflation expectations fell to 3.5%, a 0.5% decline from December.

The pullback in expectations also represented the first decline in over a year, something that will be welcomed by Federal Reserve officials. While prices still remain high, central bankers will be content that price increases are not becoming entrenched in longer-run expectations.

Consumers believed that gas, food, medical costs, rent, and college tuition will become less expensive in the future, helping fuel the lower reading. The study stated that it would appear consumers “do not view current elevated inflation as very long-lasting.” While the survey results are promising, it comes just one week after the US CPI rose 7.5%, the largest jump in 40 years.

Courtesy of the Federal Reserve Bank of New York

Markets have gyrated of late as traders rush to price in aggressive Fed tightening. Last week’s hot CPI print saw markets move abruptly to increase the chances of a 50 basis point hike at the March policy meeting. Markets now see roughly a 68% chance of a 50 basis point hike, up from a staggering 3% chance just one month ago. Fedspeak has also added fuel to the fire, with James Bullard of the St. Louis Fed adamant in his calls for 100 basis points of hikes by July 1.

Fed Funds Target Rate Probabilities

US Consumer Inflation Expectations Fall as Markets Continue to Price Aggressive Fed Tightening

Courtesy of CME FedWatch Tool

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— Written by Brendan Fagan, Intern

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