Fed Survey: U.S. Consumer Inflation Expectations Decline Across the Board in May, First Time in 2024

May saw a broad-based decline in U.S. consumer expectations for future inflation—the first decrease recorded in 2024—with short-term projections experiencing the sharpest drop.

According to a survey released by the Federal Reserve Bank of New York on Monday, the one-year inflation expectation fell to 3.2%, down from 3.6% in April. Expectations for inflation three years ahead declined from 3.2% to 3.0%, while the five-year projection eased from 2.7% to 2.6%.

Although inflation expectations remain above the Federal Reserve’s target of 2%, the downward trend reflects an improvement in consumer sentiment. Analysts attribute this shift primarily to a temporary de-escalation in U.S.-China trade tensions. The recent announcement of tariff reductions has contributed to a recovery in consumer confidence, as indicated by multiple surveys, including that of the New York Fed.

The New York Fed highlighted that inflation expectations declined across various demographic segments, including different age groups, education levels, and income brackets. Most key categories recorded lower projections, with the exception of food. Respondents predicted food prices would increase by 5.5% over the next year—0.4 percentage points higher than April—reaching the highest level since October 2023.

In contrast, inflation expectations for other sectors trended downward. Forecasted gasoline price increases dropped to 2.7%, reflecting a 0.8 percentage point decrease. Additionally, anticipated costs for healthcare, college tuition, and rental expenses also fell compared to the previous month.

Shifts in former President Donald Trump’s trade and immigration policies may be influencing consumer sentiment regarding the labor market. Despite concerns from some Federal Reserve officials about a potential rise in unemployment this year, the latest survey suggests modest improvements in views on employment, personal finances, and stock market conditions.

The proportion of respondents fearing job loss within the next 12 months declined to 14.8%, a 0.5 percentage point reduction. The likelihood of being laid off decreased by 0.5 percentage points, while voluntary resignation probabilities saw a slight uptick. The average probability that unemployment will rise over the next year dropped to 40.8%, a 3.3 percentage point decrease, though it remains higher than the 12-month average.

Regarding personal finances, fewer individuals anticipated financial difficulties in the coming year, and a smaller percentage reported increased challenges accessing credit. The proportion of respondents expecting to miss minimum debt payments over the next three months fell to 13.45%, down from 13.94% in April—the lowest level recorded since January 2024.

Investor sentiment toward the stock market also improved, with the average probability of market growth over the next 12 months increasing.

Analysts note that the New York Fed’s survey, compared to those conducted by the University of Michigan and the Conference Board, tends to be more stable and currently projects a positive outlook. This could be advantageous for the White House in alleviating concerns about inflation pressures caused by tariffs.

On Monday, White House National Economic Council Director Kevin Hassett commented on April’s inflation data, stating that the Federal Reserve’s preferred inflation gauge—the Personal Consumption Expenditures (PCE) Price Index—was at 2.1%, marking its lowest level since February 2021. The core PCE index, which excludes food and energy costs, was recorded at 2.5%.

Federal Reserve officials continue to monitor consumer inflation expectations closely to assess potential tariff-related inflation risks. Current market expectations suggest the Federal Reserve will uphold its existing interest rates during its upcoming policy meeting on June 17–18.