Federal Reserve: U.S. short-term inflation expectations hit an 18-month high in March, while long-term inflation expectations declined

On Monday, according to the latest survey data released by the Federal Reserve Bank of New York, the one-year inflation expectations in the U.S. for March reached an 18-month high, while medium- and long-term inflation expectations remained stable.

The one-year inflation expectation in March rose to 3.58%, the highest since September 2023, up from 3.13%. The three-year inflation expectation remained steady at 3%, while the five-year inflation expectation decreased from 3.0% to 2.9%.

It is worth noting that the current survey by the New York Fed contradicts the survey conducted by the University of Michigan. The New York Fed's survey shows a short-term inflation expectation of 3.6%, which is only an 18-month high, while medium- and long-term inflation expectations are robust; in contrast, the Michigan survey indicates that the one-year inflation expectation surged to 6.7%, the highest since November 1981, and the five-year inflation expectation reached 4.4%, the highest since June 1991.

Although the latest data from the New York Fed significantly alleviates market concerns about stagflation, it also highlights the possibility of a slowdown or even a complete recession in the U.S. economy. Specifically, unemployment, the probability of unemployment, and wage growth expectations have all worsened, while household income growth expectations have also declined. Households are more pessimistic about their financial situation and credit availability over the next year. Additionally, expectations for U.S. stocks have decreased, reaching the lowest level since June 2022.

Regarding the labor market:

In March 2024, the median expected income growth for the next year decreased by 0.2 percentage points to 2.8%, which is in line with the average over the past 12 months.

The panic regarding unemployment in March reached the highest level since the COVID-19 pandemic, fueled by President Trump's tariffs impacting inflation expectations. The average expected unemployment rate for the month, which reflects the likelihood of an increase in the unemployment rate in the U.S. one year later, rose by 4.6 percentage points to 44.0%, the highest since April 2020.

The perceived probability of unemployment in the next 12 months increased by 1.6 percentage points to 15.7%, the highest level since March 2024. Among these, respondents with annual incomes below $50,000 saw the largest increase.

The average probability of voluntarily leaving a job in the next 12 months rose by 0.4 percentage points to 18.0%, but it is still far below the average level of 19.7% over the past 12 months.

The situation regarding household financial conditions is even more severe:

Compared to a year ago, the perception of current household financial conditions has slightly worsened, with a higher proportion of households indicating that their situation is worse than a year ago. Expectations for financial conditions over the next year also deteriorated in March. The proportion of households expecting their financial situation to worsen in a year rose to 30%, the highest level since October 2023.

In March, the median expected growth rate of household income for the next year fell by 0.3 percentage points to 2.8%, the lowest since April 2021, and below the average of 3.0% over the past 12 months. The most significant declines were observed among those with only a high school education and households with annual incomes below $50,000.

The median expected growth rate of household spending decreased by 0.1 percentage points to 4.9%.

Expectations for future credit availability also worsened, with more respondents anticipating it will be harder to obtain credit in the coming year.

The average perceived probability of missing the minimum payment in the next three months decreased by 1.0 percentage point to 13.6%, slightly above the average of 13.4% over the past 12 months.

The median expectation for changes in tax burden over the next year at current income levels fell by 0.2 percentage points to 3.2%.

The average perceived probability of an increase in savings account interest rates over the next 12 months rose by 0.7 percentage points to 26.1%.

The survey also showed that the average perceived probability of U.S. stock prices rising over the next 12 months decreased by 3.2 percentage points to 33.8%, the lowest level since June 2022.

Recent signs indicate that DOGE is making an impact. The median expectation for U.S. government debt growth over the next year fell by 0.4 percentage points to 4.6%, the lowest level since this data series began in June 2013.

Following the release of the Federal Reserve's survey data, U.S. Treasury yields fell sharply:

• The yield on the 10-year U.S. Treasury bond dropped nearly 4 basis points, approaching 4.4%, with the intraday decline expanding to nearly 9 basis points.
• The yield on the two-year U.S. Treasury bond broke out of its earlier "low-range consolidation" around 3.94%-3.9%, plunging 3 basis points after the Federal Reserve's inflation expectations survey results were released, refreshing its intraday low to 3.8659%, with the overall intraday decline expanding to 9 basis points