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The gap to three- and five-year views widened as spending expectations reached 5.5%, both readings last seen in May 2023.
The New York Federal Reserve’s Survey of Consumer Expectations put the one-year inflation outlook at 3.9% in September, up 0.3 percentage point from August and the highest since May 2023. The survey is one of the gauges Fed officials watch as inflation remains above the central bank’s 2% target.
That near-term reading sits above the survey’s longer horizons. At 3.9%, it is 0.6 percentage point higher than the three-year expectation of 3.3% and 0.9 percentage point above the five-year view of 3.0%. The report said the longer-dated expectations were little changed, with the three-year edging up 0.1 percentage point and the five-year unchanged.
Consumers also marked up their expected household spending growth to 5.5%, an increase of 0.3 percentage point from August and, like the one-year inflation view, the highest since May 2023.
Near-term expectations jump above longer-term views
Market-based measures were described as less supportive. According to the report, a five-year breakeven stands around its highest level of the year at 2.35%. It added that Treasury yields have been soaring in recent weeks, reaching levels not seen since the early part of the century.
Energy costs have been rising. The Bureau of Labor Statistics reported gasoline prices up nearly 4% in August and fuel oil more than 10%. At the same time, PoweLines said utilities have filed for $23.1 billion in increases so far in 2026, including $4.5 billion in the third quarter, the largest sum for that period on record. The New York Fed survey found consumers expect gas prices to rise by 4.8% over the next year, up 0.2 percentage point from August.
Prices and policy context
The report said markets largely expect the Federal Open Market Committee to keep benchmark rates steady when it meets later in October. It also said inflation for August came in lower than expected on the Fed’s preferred gauge, and that several officials, including New York Fed President John Williams, said policymakers can take their time assessing where rates should be set.
The report added that fed funds futures contracts imply a policy rate of 5.58% in five years, compared with a current target range of 3.75%–4%.
The next scheduled policy decision is later in October.
Source: CNBC.
This article was written with AI assistance and reviewed by an editor.
This content is for informational purposes only and does not constitute financial advice.
🧠 HafidWatch Take
The futures market’s expectation of a policy rate significantly higher than today’s suggests that investors anticipate inflation remaining elevated or economic conditions requiring tighter policy over the longer term. This gap highlights the challenges the Fed may face in balancing near-term decisions with the potential for prolonged rate increases, underscoring uncertainty in how monetary policy will evolve beyond the immediate horizon.
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