Fed survey: Americans more optimistic about inflation as trade tensions cool
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Consumer inflation expectations fell in May for the first time in 2025, according to a survey by the New York Federal Reserve released Monday.
Why it matters: In recent months, Americans anticipated that tariff-related price hikes would result in soaring inflation. Those fears receded somewhat as the Trump administration announced a temporary trade truce with China.
The big picture: Economic policymakers closely track inflation expectations. If consumers expect higher inflation, it could affect their behavior.
- That could be the start of a feedback loop that keeps inflation pressures embedded in the economy.
The intrigue: The New York Fed survey data is the latest to suggest that consumers are directly tying inflation expectations to the trade war, raising expectations as trade tensions ramp up, and reversing them amid signs of tariff relief.
By the numbers: Inflation expectations for the year ahead fell by 0.4 percentage point to 3.2% last month, according to the regional bank's Survey of Consumer Expectations.
- That drop was mirrored across longer time horizons: Inflation expectations declined by 0.2 percentage point to 3% in the three-year-ahead period, too.
- Even before Monday's data, inflation expectations in the long term did not match the short-term gauge's sharp rise — a sign consumers had expected that any inflation shock would be fleeting.
What to watch: Consumers felt somewhat more upbeat about employment prospects and the outlook for their personal finances in May.
- On average, consumers said they were less likely to lose their job in the year ahead.
- Survey respondents saw slimmer odds that they would miss a debt payment over the next three months, a metric that has been sharply rising.
- Perceptions about their current financial situations compared to a year ago, and expectations for the year ahead, improved slightly, the New York Fed said.
The bottom line: As trade tensions cooled, Americans' expectations for inflation followed suit.
