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Three-year inflation outlook hits record low in New York Fed consumer survey

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People shop at a grocery store in Brooklyn on July 11, 2024 in New York City.

Spencer Platt | Getty Images

Consumers grew more confident in July that inflation will be less of a problem in the coming years, according to a New York Federal Reserve report Monday that showed the three-year outlook at a new low.

The latest views from the monthly Survey of Consumer Expectations indicate that respondents see inflation staying elevated over the next year but then receding in the next couple of years after that.

In fact, the three-year portion of the survey showed consumers expecting inflation at just 2.3%, down 0.6 percentage point from June and the lowest in the history of the survey, going back to June 2013.

The results come with investors on edge about the state of inflation and whether the Federal Reserve might be able to reduce interest rates as soon as next month. Economists view expectations as a key for inflation as consumers and business owners will adjust their behavior if they think prices and labor costs are likely to continue to rise.

On Wednesday, the Labor Department will release its own monthly inflation reading, the consumer price index, which is expected to show an increase of 0.2% in July and an annual rate of 3%, Dow Jones estimates show. That’s still a full percentage point away from the Fed’s 2% goal but about one-third of where it was two years ago.

Markets have fully priced in the likelihood of at least a quarter percentage point rate cut in September and a strong likelihood that the Fed will lower by a full percentage point by the end of the year.

While the medium-term outlook improved, inflation expectations on the one- and five-year horizons stood unchanged at 3% and 2.8%, respectively.

However, there was some other good inflation news in the survey.

Respondents expect the price of gas to increase by 3.5% over the next year, 0.8 percentage point less than in June, and food to see a rise of 4.7%, which is 0.1 percentage point lower than a month ago.

In addition, household spending is expected to increase by 4.9%, which is 0.2 percentage point lower than in June and the lowest reading since April 2021, right around the time when the current inflation surge began.

Conversely, expectations rose for medical care, college education and rent costs. The outlook for college costs jumped to a 7.2% increase, up 1.9 percentage points, while the rent component — which has been particularly nettlesome for Fed officials who have been looking for housing costs to decline — is seen as rising by 7.1%, or 0.6 percentage point more than June.

Expectations for employment brightened, despite the rising unemployment rate. The perceived probability of losing one’s job in the next year fell to 14.3%, down half a percentage point, while the expectation of leaving one’s job voluntarily, a proxy for worker confidence about opportunities in the labor market, climbed to 20.7%, a 0.2 percentage point increase for the highest reading since February 2023.

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Economics

Can AI predict Supreme Court rulings?

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This June may be the most harried for the Supreme Court’s justices in some time. On top of 30-odd rulings due by Independence Day, the court faces a steady stream of emergency pleas. Over 16 years, George W. Bush and Barack Obama filed a total of eight emergency applications in the Supreme Court (SCOTUS). In the past 20 weeks, as many of his executive orders have been blocked by lower courts, Donald Trump has filed 18.

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Companies already raise prices or plan to, blaming tariffs, data shows

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Johnson & Johnson manufacturing facility in Wilson, North Carolina.

Courtesy: Johnson & Johnson

Data from the New York Federal Reserve shows a majority of companies have passed along at least some of President Donald Trump’s tariffs onto customers, the latest in a growing body of evidence indicating the policy change is likely to stretch consumers’ wallets.

In May, about 77% of service firms that saw increased costs due to higher U.S. tariffs tariffs passed through at least at least some of the rise to clients, according to a survey conducted by the New York Fed that was released Wednesday. Around 75% of manufacturers surveyed said the same.

In fact, more than 30% of manufacturers and roughly 45% of service firms passed through all of the higher cost to their customers, according to the New York Fed’s statics.

Price hikes happened quickly after Trump slapped steep levies on trading partners, whether large or small. More than 35% of manufacturers and nearly 40% of service firms raised prices within a week of seeing tariff-related cost increases, according to the survey.

Trump announced in early April that he would impose “reciprocal” tariffs on more than 180 countries and territories, sending the stock market into a tailspin. But Trump soon rolled back or paused those levies for three months, unleashing the equity market to claw back most of its initial losses.

July deadline

Companies and investors alike are now looking to a July 9 deadline for the return of those suspended tariffs, coping in the meantime with continued confusion regarding to trade policy. The U.S. has already announced one trade deal with the United Kingdom, and Deputy Treasury Secretary Michael Faulkender said this week that the Trump administration is “close to the finish line” on some other agreements.

The New York Fed’s survey is the latest in a salvo of data releases and anecdotal reports that have shown companies’ willingness to pass down cost increases despite pressure from Trump not to do so.

Nearly nine out of 10 of the 300 CEOs surveyed in May said they have raised prices or planned to soon, according to data released last week by Chief Executive Group and AlixPartners. About seven out of 10 chief executives surveyed in May said they plan to hike prices by at least 2.5%.

Corporate executives have been careful in how they speak about the impact of Trump’s policies on their business, especially when it comes to trade, to avoid getting caught in the president’s crosshairs. Last month, for example, Trump warned Walmart in a social media post that the retailer should “eat the tariffs” and that he would “be watching.”

Consequently, survey data and anonymous commentary offer insights into how American business leaders are discussing the tariffs behind closed doors.

“The administration’s tariffs alone have created supply chain disruptions rivaling that of Covid-19,” one respondent said in the Institute for Supply Management’s manufacturing survey published Monday.

Another respondent said “chaos does not bode well for anyone, especially when it impacts pricing.” While another pointed to the agreement between the U.S. and China to temporarily slash tariffs, they said the central question is what the landscape will look like in a few months.

‘Hugely distracting’

“We are doing extensive work to make contingency plans, which is hugely distracting from strategic work,” this respondent said. “It is also very hard to know what plans we should actually implement.”

Responses to the ISM service sector survey released Wednesday revealed a similar focus on the uncertainty stemming from controversial tariffs.

“Tariffs remain a challenge, as it is not clear what duties apply,” one respondent wrote. “The best plan is still to delay decisions to purchase where possible.”

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Economics

Fed ‘Beige Book’ economic report cites declining growth, rising prices and slow hiring

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A store closing sign is displayed as customers shop during the last day of a store closing sale at a JOANN Fabric and Crafts location in a shopping mall following the company’s bankruptcy in Torrance, California on May 27, 2025.

Patrick T. Fallon | Afp | Getty Images

The U.S. economy contracted over the past six weeks as hiring slowed and consumers and businesses worried about tariff-related price increases, according to a Federal Reserve report Wednesday.

In its periodic “Beige Book” summary of conditions, the central bank noted that “economic activity has declined slightly since the previous report” released April 23.

“All Districts reported elevated levels of economic and policy uncertainty, which have led to hesitancy and a cautious approach to business and household decisions,” the report added.

Hiring was “little changed” across most of the Fed’s 12 districts, with seven describing employment as “flat” amid widespread growth in applicants and lower turnover rates.

“All Districts described lower labor demand, citing declining hours worked and overtime, hiring pauses, and staff reduction plans. Some Districts reported layoffs in certain sectors, but these layoffs were not pervasive,” the report said.

On inflation, the report described prices as rising “at a moderate pace.”

“There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial,” it said. “All District reports indicated that higher tariff rates were putting upward pressure on costs and prices.”

There were disparities, though, over expectations for how much prices would rise, with some businesses saying they might reduce profit margins or add “temporary fees or surcharges.”

“Contacts that plan to pass along tariff-related costs expect to do so within three months,” the report said.

The report covers a period of a shifting landscape for President Donald Trump’s tariffs.

In early May, Trump said he would relax so-called reciprocal tariffs against China, which responded in kind, helping to set off a rally on Wall Street amid hopes that the duties would not be as draconian as initially feared.

However, fears linger over the inflationary impact as well as whether hiring and the broader economy would slow because of slowdowns associated with the tariffs.

Tariffs were mentioned 122 times in Thursday’s report, compared to 107 times in April.

Regionally, Boston, New York and Philadelphia all reported declining economic activity. Richmond, Atlanta and Chicago were among the districts reporting better growth.

In New York specifically, the Fed found “heightened uncertainty” and input prices that “grew strongly with tariff-inducted cost increases. Richmond reported a slight increase in hiring despite Trump’s efforts to trim the federal government payroll.

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