Key facts
- US consumers' one-year inflation expectations held steady at 3.6% in August.
- Concerns about jobs and personal finances grew among consumers.
- The unemployment rate outlook for one year ahead reached its highest since April 2020.
- A majority of economists expect the Fed to keep rates unchanged at its upcoming meeting.
- Around 56% of economists predict rates will remain on hold for the entire year.
- Markets are pricing in two Fed rate hikes by March.
US consumers' inflation outlook remained largely stable in August, with one-year expectations at 3.6% and five-year at 3%, according to the New York Fed's Survey of Consumer Expectations. However, concerns about job security and personal finances intensified, with the unemployment rate outlook reaching its highest point since April 2020. Assessments of current and future financial situations and credit access also declined.
This comes as a Reuters poll indicates a majority of economists expect the Federal Reserve to hold its benchmark interest rate steady at its upcoming September 15-16 meeting, with about 70% anticipating the rate to remain in the 3.50%-3.75% range. However, conviction has waned, and about 56% now expect rates to stay on hold for the entire year, down from 80% previously, with the remainder expecting at least one hike. Financial markets have priced in two rate hikes by March.
Economists forecast August Consumer Price Index data to show a 0.4% month-on-month rise, holding year-over-year inflation steady at 3.4%. Annual PCE inflation is projected at 3.5% this year and 2.4% in 2027, with unemployment expected near 4.1%. Fed policymakers appear divided, with some advocating for a rate increase, particularly if inflation data surprises to the upside.