The Federal Reserve's rate increases took hold of the U.S. economy in September, causing inflation expectations and household spending growth to fall sharply.
According to the latest New York Fed Survey of Consumer Expectations, consumers expect the inflation rate to be 5.4% a year from now, the lowest number in a year.
The level peaked at 6.8% in June and has been coming down since the central bank started hiking rates. Markets expect the Fed to keep raising rates until they bring inflation down.
While the near-term outlook for inflation was improving, respondents indicated that they see household spending growth of 6% for the next year, a steep fall from August's 7.8% projection It was the lowest level since January and the biggest one-month decline ever in a data series.
Consumers have been constrained by price increases. The Bureau of Economic Analysis says personal consumption expenditures in inflation-adjusted dollars rose just 1% in August.
The number of respondents who put a higher number on their outlook for three-year inflation was up from August. The median five-year expectations moved up to 2%, an increase of 0.2 percentage point, but still close to the Fed's goal.
Home prices are expected to increase by 2%, the lowest reading since June 2020 and a reflection of a slowing real estate market. Consumers think gas prices will go up by half a percentage point and food prices will go up by 6.9%.
As the central bank looks to arrest a cost-of-living surge, the numbers come as a result. There were unprecedented levels of fiscal and monetary stimulation. The Fed began to reduce the size of its bond portfolio after it raised rates.
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