US inflation expectations ease in May, New York Fed survey shows

Americans’ anxiety about the future path of inflation eased in May, as they also grew more upbeat about the state of their personal finances, according to a report released on Monday by the New York Federal Reserve.

The regional Fed bank reported in its Survey of Consumer Expectations that the outlook for inflation across all the horizons it measures retreated last month. A year from now, survey respondents see inflation at 3.2% versus 3.6% in April, while three years from now it’s expected to be 3% versus 3.2%. Five years from now, inflation is projected to be 2.6%, compared to expectation of 2.7% in the survey for April.

The report found that respondents are expecting moderating price gains for gas, rent, medical care and college, while food costs a year from now are seen rising at a 5.5% rate, which would be the highest level since October 2023. Meanwhile, in May the year-ahead expected rise in house prices stood at 3%, down from 3.3% in April.

Of course, these broad sweeps mask some notable price moves in certain assets, such as Tesla’s 14% share price crash on Thursday, Treasury yields spiking up to 15 basis points on Friday after the latest nonfarm payrolls data, or the dollar sliding to within touching distance of a new three-year low on Thursday.

Investors appear to be in a forgiving mood, willing to trust that policymakers will dial down global trade tensions, slow the U.S. fiscal train as it approaches the cliff edge, and steer the world economy through these choppy waters with minimum damage.

Investors faced several key monetary policy crosswinds this week. The Bank of Canada stood pat and the European Central Bank cut rates by a quarter of a percentage point, but their guidance was seen as relatively hawkish. The Canadian dollar and euro both strengthened.

On the other hand, Switzerland’s slide into deflation ups the ante on the Swiss National Bank and traders are betting on a return to negative interest rates by the end of the year. Meanwhile, the Reserve Bank of India on Friday cut rates by more than expected.

Fed officials mostly continue to hold the line that uncertainty around tariffs and their impact on growth and inflation is so high that the central bank is firmly in the ‘wait and see’ camp. If the Fed is to resume its easing cycle, it won’t be until October, according to rates futures market pricing.

With global central banks perhaps entering a summer pause, focus will intensify on the Trump administration’s trade deal negotiations with major trading partners like China and Europe ahead of July 9, when Washington’s pause on reciprocal tariffs expires.

U.S. President Donald Trump indicated that his 90-minute telephone call with China’s Xi Jinping on Thursday was friendly, and there were lots of smiles in his meeting later that day in the Oval Office with German Chancellor Friedrich Merz.

But ultimately, the call with Xi yielded nothing concrete, although U.S.-China talks will take place in London next week. And it is through the 27-nation European Union that any deal with Germany will be reached, not bilaterally.

There are so many moving parts on Washington’s tariff board, including but not restricted to: sector tariffs, reciprocal tariffs, bilateral negotiations with dozens of countries, and court rulings and counter rulings.

It’s a little surprising, perhaps, that investors’ glass is half full.

The moderation in the inflation outlook took place against a background of high uncertainty over the future of price pressures. Huge and ever-shifting tax hikes on imports imposed by the Trump administration are broadly expected by economists and policymakers to push up inflation, while depressing hiring and growth. The major question is whether the gain is a one-off or the makings of something more persistent.

There’s been little clarity on how much those tariffs will impact the economy, especially as President Donald Trump raises and lowers his import levies unpredictably. The survey period for the New York Fed report overlapped with some of the biggest shifts on tariffs, and the moderation in the readings for May will likely bolster officials’ confidence that inflation is not gearing up for an extended breakout to higher levels.

The Fed will almost certainly leave its benchmark interest rate steady in the 4.25%-4.50% range at the end of its June 17-18 policy meeting. Inflation remains above the U.S. central bank’s 2% target and is not expected to moderate to desired levels soon, in an otherwise healthy economy.

The New York Fed report also found that households upgraded their views on their incomes, earnings, hiring prospects and finances.

The survey found households had “slightly” improved views on their current financial situation in May, as respondents said access to credit improved relative to last year, while expectations of missing a debt payment declined.