Inflation expectations drift back down to pre-tariff levels, New York Fed survey shows

Fears earlier this year that President Donald Trump's tariffs would result in a sharp inflation spike have completely receded, according to a New York Federal Reserve survey released Tuesday.

The central bank's monthly Survey of Consumer Expectations shows that respondents in June saw inflation at 3% 12 months from now. That's the same level it was in January — before Trump took office and began saber-rattling over trade.

The level marked a 0.2 percentage point decline from May and a retreat from the 3.6% peak hit in March and April.

Since April, Trump has gone from slapping across-the-board 10% tariffs plus a menu of so-called reciprocal duties against U.S. trading partner to a more conciliatory approach involving ongoing negotiations.

Thus far, tariffs have yet to show up in most inflation readings. The consumer price index rose just 0.1% in May, according to the Bureau of Labor Statistics, though the annual inflation rate of 2.4% remains above the Fed's 2% goal.

Inflation expectations at the three- and five-year horizons were unchanged at 3% and 2.6% respectively, according to the survey.

While the headline inflation outlook eased, respondents still expect higher prices in several key individual categories. The survey pointed to expectations for a 4.2% increase in gas prices, 9.3% for medical care — the highest since June 2023 — and 9.1% for both college education and rent. The outlook for food price increases was unchanged at 5.5%.

Employment metrics also showed some improvement, with a 1.1 percentage decrease in the expectation for a higher unemployment rate a year from now. Also, the average expectation for losing one's job fell to 14%, a 0.8 percentage point drop and the lowest reading since December.