• One-year inflation expectations eased to 3.5% in May from 3.6% in April, while three- and five-year views held steady at 3.1% and 3.0%.
  • Year-ahead home price expectations rose to 3.5%, the highest since 2022, and gasoline expectations edged down to 5.0%.
  • Consumer sentiment hit its weakest since 2022, with mixed job market expectations adding to caution.

Inflation Expectations Show Modest Cooling

The New York Fed's Survey of Consumer Expectations for May revealed a slight softening in near-term inflation expectations, with the one-year-ahead median falling to 3.5% from 3.6% in April. Medium- and longer-term expectations remained anchored, with three-year views unchanged at 3.1% and five-year at 3.0%. The data suggest that while consumers see some easing in price pressures over the next year, they remain wary of persistent inflation over the longer haul.

Housing and Energy: Diverging Trends

Home price expectations jumped to 3.5% year-ahead, marking the highest reading since 2022, reflecting ongoing housing market tightness and elevated mortgage rates. In contrast, gasoline price expectations edged down to 5.0% from the prior month, offering some relief at the pump. The divergence highlights the uneven nature of consumer cost pressures, with housing continuing to weigh heavily on household budgets.

Sentiment and Labor Market Weakness

Consumer sentiment deteriorated further, falling to its lowest level since 2022, according to the survey. Job market expectations were mixed: while the perceived probability of losing one’s job in the next 12 months dipped slightly, the likelihood of finding a new job if laid off also declined. This ambivalence suggests that households are increasingly cautious about their financial prospects, even as inflation expectations moderate.

Implications for Monetary Policy

The mixed survey results present a nuanced picture for the Federal Reserve. The easing of short-term inflation expectations could support a patient approach to rate cuts, but the rise in home price expectations and persistent medium-term views may keep policymakers on guard. “The anchoring of longer-term expectations is encouraging, but the housing component bears watching,” said a person familiar with the survey’s analysis. The Fed is expected to weigh these consumer perceptions alongside other data as it deliberates its next move.

Correction: An earlier version of this article misstated the May one-year inflation expectation as 3.4%. It is 3.5%.