Fed study reveals how long US consumers can expect hyperinflation to continue
US consumers do not expect any relief from higher prices in the near term, a research paper from the New York Federal Reserve said, believing that the current massive inflation wave will continue to filter through the next 12 months before finally losing steam over the three-year horizon.
A new analysis from the Federal Reserve Bank of New York found that US consumers surveyed about future inflation expectations said they believe prices will continue to trend upwards over the next year before dropping and staying low.
The researchers wrote in a May 26 blog post co-authored by New York Fed President John Williams.
Williams and the research team said that medium-term inflation expectations, which have a three-year time frame, appear to have stabilized.
“While short-term inflation expectations have continued to trend upward, medium-term inflation expectations appear to have reached a plateau over the past few months, and long-term inflation expectations have remained remarkably stable,” the researchers wrote.
It comes after the New York Fed’s latest survey of consumer expectations showed that three-year inflation expectations rose in April by 0.2 percentage points to 3.9 percent after several months of persistent declines, prompting some analysts to fear a new inflationary upside. . .
The medium-term inflation expectations figures recorded a record high of 4.2 percent in October 2021, then steadily declined to 3.5 percent in January 2022, before rising again over the past few months to reach 3.9 percent in April.
The new findings provide more clarity on where Fed researchers expect prices to move forward, essentially showing that long-term inflation expectations remain well anchored and that a rally in April is not indicative of a continuation of the inflationary pulse.
The researchers note, however, that US consumers have been more divided about the price trajectory over the medium term, expressing more uncertainty than they were before the pandemic about the inflationary path ahead.
“Somewhat surprisingly, there is a divergence in consumers’ expectations of inflation in the medium term, in the sense that we observe a simultaneous increase in both the proportion of respondents who expect high inflation and the proportion of respondents who expect low inflation (and even deflation) three years from now. research team wrote.
The results are roughly in line with recent forecasts from the Congressional Budget Office (CBO), which said in its May 25 report that inflation has peaked and will now decline steadily to an average of 2.3 percent for the whole of 2023, as measured by the Fed. PCE Preferred Price Index Scale. It is then expected that inflation will continue to fall to close to the Federal Reserve’s 2 percent target by the end of 2024 and will remain low going forward.
PCE inflation data released on May 27 reinforces the view that inflation has already peaked. It shows that the pace of price increases on a monthly basis declined from 0.9 percent in March to 0.2 percent in April, which is much lower than analysts’ expectations of 0.8 percent.
The Central Bank of Oman believes that the Fed, in an effort to bring down inflation, will raise the benchmark interest rate to 1.9 percent by the end of 2022 and to 2.6 percent by the end of 2023. These expectations are lower than market expectations, with the federal funds rate awarding contracts Futures has a nearly 90% chance of rates between 2.5 and 2.75% by the end of 2022.