People walk past a store along the Magnificent Mile shopping district on March 15, 2023 in Chicago, Illinois.
Scott Olson | Getty Images
Household spending is expected to decline significantly over the next year, according to a New York Federal Reserve survey released on Monday, which reflects pessimistic consumer sentiment as well as a potential slowdown in inflation.
The central bank’s survey of consumer expectations for April showed the outlook for spending fell half a percentage point to an annual rate of 5.2%, the lowest level since September 2021 .
This was accompanied by a corresponding 0.3 percentage point drop in the headline inflation outlook over the next year. Respondents expect an inflation rate of around 4.4% over the next 12 months, still well above the three-year outlook of 2.9% and the five-year outlook of 2.6 %.
All of these levels are still above the Fed’s 2% inflation target, although they are approaching the target.
The survey results come less than a week after the Fed approved its 10th straight interest rate hike since March 2022. That took the benchmark federal funds rate to a target range of 5% to 5%. .25%, the highest level since August 2007.
Along with the rate hike, Fed officials hinted that this month’s hike could be the last for some time as they assess the impact of all previous monetary policy tightening.
Consumers expect gasoline prices to rise 5.1% over the next year, up half a point from the March survey. Food prices are expected to rise 5.8%, down 0.1 percentage points from the previous month. The outlook for college costs fell sharply, falling to an expected 7.8% increase, 1.1 percentage points lower than in March.
The median outlook for earnings growth remained unchanged at 3%, although employment prospects deteriorated. The probability that the unemployment rate will be higher in a year has risen to 41.8%, an increase of 1.1 percentage points. April’s unemployment rate fell to 3.4% on Friday, tied for the lowest since May 1969.
Elsewhere in the survey, the one-year outlook for home price appreciation rose to 2.5%, the highest since July 2022 and a 0.7 percentage point increase from March.