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Federal Reserve survey shows consumer inflation expectations holding steady

Kristin Schwab Apr 8, 2024
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For consumers, it's important that the Fed expresses its commitment to getting inflation down to 2%, no matter how long it takes, economist Carola Binder said. Robert Nickelsberg/Getty Images

Federal Reserve survey shows consumer inflation expectations holding steady

Kristin Schwab Apr 8, 2024
Heard on:
For consumers, it's important that the Fed expresses its commitment to getting inflation down to 2%, no matter how long it takes, economist Carola Binder said. Robert Nickelsberg/Getty Images
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Will we or won’t we get interest rate cuts this year? The question’s become puzzling amid strong economic data, like Friday’s stellar jobs report, and conflicting messages from Federal Reserve bank presidents who have floated everything from three to zero reductions in 2024. 

Those mixed messages can weigh on consumers. In Monday’s Survey of Consumer Expectations released by the Federal Reserve Bank of New York, households expect annual inflation to be 3% in a year. While that’s not up from the previous month’s figure, it’s also not down. In the journey toward 2% inflation, it’s important to look at how consumers interpret that kind of messaging and what their expectations are.

Maybe you aren’t hanging on every word out of the Fed, but Randy Kroszner, a former governor of the Federal Reserve Board, says messaging has meaning. If the Fed can’t figure out where things are going, “I think it’s very challenging for individual households to figure out where things are going,” Kroszner said.

And where we’re going as consumers. Is it almost time to look for a house? Or start a business? Or maybe buy a washer-dryer? Because, yes, yours could hang on a little longer, but by the time it dies a new one might be much more expensive.

And if prices will keep going up, maybe asking for a pay raise is in order. “That is, I better ask for a little bit extra in my paycheck because I’m not so sure where things are going,” Kroszner said.

Uncertainty can push people to take action or clam up. Carola Binder, an economist at Haverford College, said the economy can withstand a bit of uncertainty, even from Fed presidents.

“I think I prefer that over, like, they kind of meet in secret, come up with a story that they can all sign off on and only that can come out,” Binder said.

Because Binder says what’s most important is that the Fed communicates that it is weighing every move. That it is committed to getting inflation down to 2%, no matter how long it takes.

“The important thing now is keeping those longer-run expectations down and stable,” she said.

And so far, so good. Households’ five-year inflation expectations have decreased, according to the Fed survey. Economist Fabio Gómez-Rodríguez at Lehigh University said the Fed is playing the long game. And inflation? Well, it’s a long game.

“Inflation is persistent. It’s like a giant. Very big, but it moves slowww, slowww,” he said.

So slow that we can’t even register that it’s moving anymore? Maybe.

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