According to recent data from the Federal Reserve Bank of New York’s Center for Microeconomic Data, “median inflation expectations remained unchanged at 3.0 percent at the one-year horizon, increased to 2.7 percent from 2.4 percent at the three-year ahead horizon, and increased to 2.9 percent from 2.5 percent at the five-year ahead horizon.” Furthermore, as you can see from the chart immediately below, inflation at the Retail as well as Wholesale levels as measured by the Consumer and Producer Price Indexes has begun leveling off.This combination of inflation potentially becoming embedded in the minds of consumers along with a flattening of the downward trajectory of recent data is precisely the reason why the Open Market Committee of the Federal Reserve (FOMC), the body that determines monetary policy, will remain hesitant in regard to cutting interest rates.
Rising inflation expectations may impact the decision-making process of the U.S. consumer as well as the way American business conducts operations. Some of these include consumption patterns, saving and investment, borrowing and lending, and how wage and benefit packages are negotiated.
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