New York Fed Survey: Consumers' Inflation Concerns Ease Amid Cooling Tariff War

On Monday local time, a survey released by the New York Fed showed that as the tariff war cooled down, US consumers' concerns about inflation eased in May.

Specifically, the Survey of Consumer Expectations in May indicated that the one-year inflation expectation was 3.2%, a decrease of 0.4 percentage points from a month earlier; the three-year inflation expectation fell from 3.2% in April to 3%; and the five-year inflation expectation dropped from 2.7% to 2.6%.

Although these figures remain above the US Fed's annual inflation target of 2%, the changes in these indicators are moving in a positive direction and reflect a shift in the fear sentiment that had previously arisen from Trump's wielding of the tariff stick.

In early April, Trump announced a 10% baseline tariff on all US imports and a series of so-called reciprocal tariffs on dozens of trading partners. Faced with severe market volatility in financial markets, he then announced a postponement of the reciprocal tariff measures.

US Fed officials closely monitor the trend of inflation expectations, as they believe that the public's expectations about inflation can have a strong impact on current levels. If people expect higher prices in the future, they may increase spending now and even demand higher wages. The Fed has repeatedly stated that the relative stability of long-term expectations is one reason they believe inflation will return to the target level.

Compared with the survey results from the University of Michigan and the Conference Board, the New York Fed's survey results are less volatile. This survey brought some good news to the White House at a time when US government officials are trying to ease concerns about tariff-induced inflation.

Kevin Hassett, director of the White House National Economic Council, said on Monday that, based on every inflation indicator, the decline exceeded the levels seen in more than four years. "Despite the increase in tariff revenue, inflation is declining, which contradicts what others have been saying but aligns closely with what we have been saying."

However, economists generally expect that high tariffs will lead to higher prices for consumers while dampening employment and economic growth. The main question is whether these price increases will be one-time events or have lasting impacts.

Nick Timiraos, known as the "Fed Whisperer," commented that the New York Fed's inflation expectations for May unexpectedly declined, although uncertainty about medium-term inflation expectations remains high.

In addition, the survey also showed that consumers believe there is a lower likelihood of unemployment rising next year and that they will have more opportunities to find work if they themselves become unemployed.

In May, consumers became more optimistic about their personal financial situations, including a slight improvement in access to credit and a decrease in the likelihood of debt delinquency.

However, a report on Monday revealed that one pain point for consumers still persists: grocery store operations. Consumers expect food prices to rise by 0.4 percentage points to 5.5% next year, the highest level since October 2023. Meanwhile, the expected increase in home prices in May was 3%, down from 3.3% in April.