The University of Michigan’s final June reading of U.S. consumers’ longer-term inflation expectations has rebounded from an originally predicted 14-year high, potentially reducing the urgency for a steeper rise in inflation. Federal Reserve interest rate.
Respondents said they expected inflation to rise 3.1% over the next five to 10 years, down from a preliminary reading of 3.3%, according to Friday’s report.
They see prices rising 5.3% over the next year, matching the initial figure.
“Overall, the end-June reversion in long-term inflation expectations was driven by the growth in the share of consumers expecting extremely low inflation in the years to come,” said Joanne Hsu, director of the investigation, in a press release.
“About half of these consumers expressed gloomy views about the risks of recession or unemployment during the interviews.”
Inflation expectations results earlier this month played a key role in the Fed’s decision last week to raise interest rates to the maximum since 1994.
Chairman Jerome Powell said the Michigan data, along with other recent measures of inflation, helped point policymakers to a 75 basis point hike, rather than 50 basis points.
At a news conference after the move, Powell said the rally in expectations was “pretty eye-catching” and stressed how important it was for the central bank to keep long-term inflation expectations anchored.
Still, Powell acknowledged that the preliminary number could be revised.
According to the report, consumers still express the highest level of uncertainty about long-term inflation since 1991, although respondents are broadly certain of the Fed’s policy direction.
The S&P 500 advanced and the Treasuries erased losses after the numbers.
Traders reduced bets that the Fed would raise interest rates by 75 basis points in July.
Meanwhile, the university’s overall sentiment index was little changed at a record high of 50, down slightly from June’s preliminary reading and the previous month’s print of 58.4.
The steep drop reflects decades-high inflation, a slump in stock prices over the past month and generally pessimistic views about the state of the economy amid growing fears of an impending recession.
The current conditions indicator lost further ground at the end of the month.
The gauge fell to a new low of 53.8. The measure of future expectations has improved slightly since the beginning of the month.
Still, the index was among the lowest on record.
Household durable goods purchasing conditions also deteriorated further, with the index falling to a new record low, according to the University of Michigan report.
“Continued pessimism about personal finances and the economy could dampen consumer spending going forward,” Hsu said.