Consumers show less concern over inflation

Americans’ expectations for the near-term path of inflation ebbed to nearly a two-year low last month, which could take pressure off the Federal Reserve to raise rates amid fresh uncertainties created by turmoil in the U.S. banking system.

It’s the first of a run of key readings on inflation, consumer spending and sentiment that could affect whether the central bank hikes interest rates or pauses to measure the fallout from bank failures.

The New York Fed’s Survey of Consumer Expectations on Monday showed that respondents said inflation would stand at 4.2 percent a year from now.

That’s a notable drop from the 5 percent expectation in January and the lowest reading since the 4 percent registered in May 2021.

Meanwhile, the expected level of inflation three years from now held steady at 2.7 percent, matching the level last seen in October 2020, while expected inflation five years from now was seen hitting 2.6 percent, up from January’s 2.5 percent.

The New York Fed survey arrived just ahead of the Fed’s March 21-22 policy meeting. Until this past weekend, the gathering had widely been expected to result in an interest rate increase, as the central bank presses forward with its effort to cool high levels of inflation.

But the failure of Silicon Valley Bank, which forced government authorities to offer new liquidity support to the banking system, has scrambled the monetary policy outlook.