Ahead of this week's FOMC meeting, the New York Fed released new figures showing that consumers expect inflation to remain elevated for the foreseeable future. According to the latest Survey of Consumer Expectations, Americans’ inflation expectations for one year from now climbed for the second consecutive month, reaching 3.2 percent in August. Meanwhile, the median expected inflation rate three years ahead remained unchanged at 3.0 percent for the fourth consecutive months. This is up from an average of 2.7 percent through 2024 and a clear sign that consumers are losing hope for inflation to return to the Fed's target level of 2 percent anytime soon.
Both actual inflation and 12-months expectations peaked in June 2022, at 9.0 percent and 6.8 percent, respectively. Since then, inflation has cooled notably, dropping as low as 2.3 percent in April 2025 before creeping back up to 2.9 percent in August. Expectations play a crucial role in inflation dynamics, as expectations of future inflation influence wage negotiations and price-setting processes, which then feed into current inflation rates. When expectations of future inflation are high, prices and wages are likely to be set accordingly, creating a self-fulfilling prophecy.
