Interbank Market News Scan: Biden releases budget; inflation may not be that high next year; Nigeria’s central bank injects liquidity

Interbank, Pakistan, rupee. “The rupee reached a new record low on Monday, selling at 182.19 against the dollar in the interbank market, as political uncertainty triggered by a no-confidence move against Prime Minister Imran Khan weighed on sentiment, dealers said.” See article here. Source: The International News.

Interbank, Nigeria, naira, Access Bank. Similarly, (Access Bank) states that operating expenses at bank-level was up marginally by 2% year on year, showcasing the effectiveness of cost-cutting measures whilst also noting that FX rates on the Interbank market continued upward trend by 6% year on year to stand at N424 per dollar mainly driven by rate adjustments and lean supply. See article here. Source: Nairametrics.

Interbank, Pakistan, rupee. “The buying rate of 1 SAR to PKR was Rs 48.050 and the selling rate of 1 SAR to PKR was Rs 48.850 in the interbank market on Mar 28, 2022.” See article here. Source: BOL News.

Interbank, LIBOR, SOFR. “With a war waging in Central Europe, inflation at 50-year highs and the U.S. central bank looking to raise interest rates multiple times this year, you’d think that the average mortgage banker already has a pretty full plate. But add to the list of woes the Fed’s abortive transition from Libor to the Secured Overnight Financing Rate or SOFR and you have a recipe for disaster later this year.” — Christopher Whalen. See article here. Source: National Mortgage News.

Interbank, Nigeria, open market operations, naira. “In pursuant of its pro economic growth monetary policy the Central Bank of Nigeria, CBN, increased its net liquidity injection into the interbank money market by 110 per cent  to N770 billion in the first quarter of the year, Q1’22, from N367 billion in the fourth quarter of last year, Q4’21.” See article here. Source: Vanguard Nigeria.

Interbank, U.S., inflation, dollar. “Neuberger Berman expects extreme bond market volatility to stabilise and is counting on opportunities scooping up cheap high-yield and investment grade bonds in the telecom and energy sectors.” See article here. Source: Financial Review.

Interbank, U.S., budget, taxes. “Today, President Joe Biden released the FY2023 Budget to propose critical investments that will prioritize security at home and abroad, bolster the economy, promote health, tackle climate change, and further opportunity for all.” See article here. Source: U.S. Department of the Treasury.

Foreign exchange rates and dollar index as of 29 March 2022, 3:20 am GMT

Currency Pair28 March 202229 March 202230 March 202231 March 20221 April 2022
EUR/USD1.098341.09717   
GBP/USD1.317661.31204   
USD/CNY6.365266.37031   
USD/CHF0.930150.93439   
USD/NGN415.25415.181   
USD/ZAR14.527214.6255   
USD/AOA449.768448.000   
USD/INR76.01178.9895   
USD/JPY122.07123.527   
USD/SAR3.745243.74524   
Dollar Index99.0099.04   
Sources: OANDA, MarketWatch

Consumer Spending Growth Expectations Spike, while Inflation Expectations Edge Back Up

March 14, 2022

NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the February 2022 Survey of Consumer Expectations, which shows an increase in short-and medium-term inflation expectations, reversing some of last month’s sharp declines. Median home price expectations, on the other hand, declined. Year-ahead earnings growth expectations remained unchanged, while expectations about unemployment, perceived job loss, and job finding expectations all improved. Spending growth expectations for the year ahead reached a new series high. Expectations about future credit access deteriorated noticeably.

The main findings from the February 2022 Survey are:

Inflation

  • Median one-year-ahead inflation expectations increased to 6.0% in February from 5.8% in January, matching its November 2021 series’ high. The increase was widespread across age, education, and income groups, but largest for the respondents without a high school degree. After a sharp decline in January, median three-year ahead inflation expectations ticked up by 0.3 percentage point to 3.8%, while remaining below its November and December 2021 levels of 4.2% and 4.0%, respectively. The survey’s measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) remained unchanged at both horizons and well above their pre-pandemic readings.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—decreased slightly at the one-year horizon and increased at the three-year horizon. Both measures remain elevated relative to their pre-pandemic levels.
  • Median year-ahead home price change expectations decreased to 5.7% from 6.0%. The decline was most pronounced for respondents without a college education.
  • All the commodity price change expectations the survey elicited increased in February. Median expectations about year-ahead price changes for food and gas increased by 3.3 and 1.5 percentage points to 9.2% and 8.8%, respectively. The median year-ahead expected change in the costs of medical care and college education increased to 9.6% and 9.0%, from 9.5% and 7.3%, respectively. The median expected one-year-ahead change in the price of rent increased to 10.1%, from 9.8%.

Labor Market

  • Median one-year-ahead expected earnings growth was unchanged for the second consecutive month at 3.0% in February and remains above its 12-month trailing average of 2.6%.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased to 34.4% from 35.9%. The decline was broad-based across age, education, and income groups.
  • The mean perceived probability of losing one’s job in the next 12 months declined by 0.8 percentage point to 10.8%, reaching a new series low. The mean probability of leaving one’s job voluntarily in the next 12 months also decreased to 18.9% from 19.3%.
  • The mean perceived probability of finding a job (if one’s current job was lost) increased to 56.5% from 55.7%, remaining above its trailing 12-month average of 54.0%. The increase was driven by respondents without a high school degree.

Household Finance

  • The median expected growth in household income fell by 0.1 percentage point to 3.2% in February, but remains above its trailing 12-month average of 3.0%.
  • Median year-ahead household spending growth expectations increased sharply to 6.4% from 5.5% in January, reaching a new series high since the start of the series in June 2013. The increase was broad-based across age, income, and education groups.
  • Expectations about future credit availability deteriorated considerably, with more respondents expecting it will be harder and substantially fewer respondents expecting it will be easier to obtain credit in the year ahead. Perceptions of credit access compared to a year ago also deteriorated, with more (fewer) respondents finding it harder (easier) to obtain credit now than a year ago.
  • The average perceived probability of missing a minimum debt payment over the next three months decreased by 0.8 percentage point to 9.2%, a new series low.
  • The median expectation regarding a year-ahead change in taxes (at current income level) increased slightly to 4.5% from 4.4%.
  • Median year-ahead expected growth in government debt remained unchanged at 11.1%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased to 31.3% from 30.5% its highest level since May 2019.
  • Perceptions about households’ current financial situations compared to a year ago deteriorated slightly, with more (fewer) respondents reporting being financially worse (better) off than they were a year ago. Respondents were mixed about their household’s financial situation in the year ahead, with a larger share of respondents expecting their financial situation to deteriorate and also a larger share of respondents expecting their financial situation to improve a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased by 1.5 percentage points to 37.0%. This is the lowest reading of the series since June 2013.

About the Survey of Consumer Expectations

The Survey of Consumer Expectations (SCE) contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy. 

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, this panel allows the survey to report the changes in expectations and behavior of the same individuals over time. For further information on the SCE, please refer to an overview of the survey methodology here, the interactive chart guide, and the survey questionnaire.

Contact
Mariah Measey
(347) 978-3071
Mariah.Measey@ny.frb.org 

Source: Federal Reserve Bank of New York

While awaiting Jerome Powell’s appearance before the Senate, some thoughts on partisanship and policy rates…

The only interest that the Republican and Democratic parties have in monetary policy are how best to weaponize interest rates to justify reckless spending and oppressive taxes. Low interest rates allow the U.S. Treasury to issue bonds in return for cash that is less expensive to service. The Federal Reserve Bank of New York places these IOUs into the market where commercial banks and other accredited market participants buy these IOUs and hold them in their portfolios as collateral in order to support their own future borrowing needs.

Democrats would like to see the interbank, overnight lending rate stay low. A low overnight rate incentivizes banks to lend money in the credit markets, theoretically putting credit and capital into the hands of end users who can deploy that money into productive and non-productive use. Of course, not all this cheap money goes into the hands of entrepreneurs but also into the hands of end-use consumers that want to leverage a trip to The Bahamas now and pay for it later out of their future income. In addition, Democrats can create and subsidize programs aimed at meeting short term electorate needs i.e. stimulus, or subsidize larger projects like renewable energy, which may assist some consumers but is really aimed at Democratic donors in the energy industry that may need R&D and other funding to aid their industry’s development.

Republicans, for all their smaller government rhetoric, don’t get off the hook. Although increased rates could help their banking industry constituents increase their income, low interest rates means corporations can get the cheap financing that enables business expansion.

The battle between Democrats and Republicans boils down to which constituency benefits the most from government’s overall need to expand.

During today’s Senate hearing where Federal Reserve chairman Jerome Powell presents the Fed’s semi-annual monetary policy report, you will notice that none of the banking committee members will call for an abolishment of the central bank. As much as elected and central bank officials reiterate the Federal Reserve’s political independence, the reality is that the Federal Reserve operates in a political environment, navigating that channel between both sides of the political spectrum. All one has to do is look at its increasing foray into social issues including climate change and racial equality in credit access to see that the Federal Reserve is influenced by the political climate.

Both sides of the aisle during today’s hearing will wail on about the obvious elephant in the room: inflation. If the Democratically-controlled Senate and House are so concerned about inflation, then they should not oppose a decline in the demand of the M2 money supply caused by an increase in the use of alternative currencies that transfer economic energy between autonomous individuals. The increase in money supply is the result, in part, of politicized demand which encourages low cost money which in turn moves toward low return, unproductive activity. Just go on the internet and you see plenty of examples.

The best inflation fighter in the short term is the use of alternative currencies for payments. Increasing the supply and use of alternatives decreases demand for a central bank’s credit-fiat currency.

Alton Drew

03.03.2022

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Interbank Market News Scan: American consumers expect decrease in inflation headwinds over the next three years.

February 14, 2022

NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the January 2022 Survey of Consumer Expectations, which shows a decrease in short- and medium-term inflation expectations. Median home price expectations, however, increased above its 2021 average. Labor, income, and spending expectations were all largely stable in January.

The Federal Reserve Bank of New York also issued an accompanying Liberty Street Economics blog post on how consumers’ inflation expectations have responded to inflation during the pandemic.

The main findings from the January 2022 Survey are:

Inflation

  • Median one-year-ahead inflation expectations decreased to 5.8% in January from 6.0% in December. This is the first decline in short-term inflation expectations since October 2020. Similarly, median three-year ahead inflation expectations decreased by 0.5 percentage point to 3.5%. The decline in medium-term inflation expectations was broad-based across age, education, and income groups and is the largest one month decline in the measure since the inception of the survey in 2013. Both measures of inflation expectations, however, remain elevated compared to their pre-COVID-19 readings. Our measures of disagreement across respondents (the difference between the 75th and 25th percentiles of inflation expectations) increased at the short-term horizon, but decreased at the medium-term horizon.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—remained unchanged at the one-year horizon and decreased slightly at the three-year horizon. Both measures remain well above their pre-pandemic February 2020 readings.
  • Median year-ahead home price change expectations increased to 6.0% from 5.5%, above its 2021 average of 5.4%. The increase was most pronounced among respondents with no more than a high school education and those who live in the “West” and “Northeast” Census regions.
  • The commodity price change expectations elicited in the survey all declined in January. The expectations about year-ahead price changes for food, rent, gas, and medical care all declined by 0.1 percentage point to 7.7%, 9.8%, 5.6%, and 9.5%, respectively. The median one-year ahead expected change in the cost of a college education decreased by 0.7 percentage points to 7.3%.

Labor Market

  • Median one-year-ahead expected earnings growth was unchanged at 3.0% in January and remains above its 2021 average of 2.6%.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 0.7 percentage point to 35.9%.
  • The mean perceived probability of losing one’s job in the next 12 months remains unchanged at 11.6%, well below its pre-pandemic reading of 13.8% in February 2020. The mean probability of leaving one’s job voluntarily in the next 12 months decreased to 19.3% in January, from 19.9%.
  • The mean perceived probability of finding a job (if one’s current job was lost) declined to 55.6% in January from 57.5%, but remains well above its 12-month trailing average of 53.5%.

Household Finance

  • The median expected growth in household income fell by 0.1 percentage point to 3.3% in January, but remains above its trailing 12-month average of 2.9%.
  • Median year-ahead household spending growth expectations remained unchanged at 5.5%, substantially above its pre-pandemic level.
  • Perceptions of credit access compared to a year ago deteriorated slightly in January, with more respondents finding it harder to obtain credit now than a year ago. Expectations for future credit availability deteriorated slightly as well with more respondents expecting it will be harder to obtain credit in the year ahead.
  • The average perceived probability of missing a minimum debt payment over the next three months decreased by 0.3 percentage point to 10.0%, which is slightly below the 12-month trailing average of 10.1%.
  • The median expectation regarding a year-ahead change in taxes (at current income level) was unchanged at 4.4%. 
  • Median year-ahead expected growth in government debt increased by 0.3 percentage point to 11.1%, which is the second lowest reading since December 2020.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased to 30.5% in January, from 28.2%. This is the highest reading of the series since May 2019.  
  • Perceptions about households’ current financial situations compared to a year ago improved slightly, with fewer respondents reporting being financially worse off than they were a year ago. Respondents were slightly more pessimistic about their household’s financial situation in the year ahead, with more respondents expecting their financial situation to deteriorate a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased by 0.4 percentage point to 38.5%.

About the Survey of Consumer Expectations (SCE)

The Survey of Consumer Expectations (SCE) contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy. 

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, this panel allows us to observe the changes in expectations and behavior of the same individuals over time. For further information on the SCE, please refer to an overview of the survey methodology here, the interactive chart guide, and the survey questionnaire.

Contact
Mariah Measey
(347) 978-3071
Mariah.Measey@ny.frb.org 

Source: Federal Reserve Bank of New York

Interbank Market News Scan: U.S. inflation rate at 7.5%

Interbank, United States, Inflation. “In January, the Consumer Price Index for All Urban Consumers rose 0.6 percent, seasonally adjusted, and rose 7.5 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.6 percent in January (SA); up 6.0 percent over the year (NSA).” See report here. Source: U.S. Bureau of Labor Statistics

Interbank, Pakistan. “The buying rate of 1 SAR to PKR was Rs46.710 and selling rate of 1 SAR to PKR was Rs46.790 in the interbank market on Feb 10, 2022.” See article here. Source: BOL News

Interbank, China. “The central parity rate of the Chinese currency renminbi, or the yuan, weakened 84 pips to 6.3653 against the U.S. dollar Wednesday, according to the China Foreign Exchange Trade System.” See article here. Source: China.org

Interbank, Taiwan. “The central bank has asked exporters to sell their US dollar holdings at different times to avoid causing a sudden appreciation of the NT dollar.” See article here. Source: Taipei Times

Interbank, Japan. “Global shares rose Thursday as investors tried to gauge U.S. inflation, tensions between Russia and Ukraine and the impact of the pandemic.” See article here. Source: News4Jax

Foreign exchange rates of interest as of 8:16 am EDT

EUR/USD=1.1427

GBP/USD=1.3553

USD/MXN=20.5344

USD/GTQ=7.52045

USD/NGN=415.844

USD/GHS=6.36299

USD/VND=22,694.9

USD/JPY=115.45

USD/INR=74.6951

USD/BTC=0.00002

USD/ETH=0.00032

Source: OANDA

Dollar Index (DXY)=95.51

Source: MarketWatch

Interbank Market News Scan: Bank of England raises its policy rate to 0.5%, sees inflation at 7%.

“The UK economy continues to recover. In November last year, economic activity was back to where it was before the pandemic. Since then, the spread of Omicron meant people spent less. But as the number of new cases falls, we expect spending to go up again.

The number of people out of work is going down. The unemployment rate is only slightly higher than it was before the start of the pandemic.

Inflation (the pace of price rises) has risen above our 2% target. Prices rose by 5.4% last year.

Higher energy prices is one of the main reasons for this. Large increases in oil and gas prices have pushed up petrol prices and utility bills.

Higher prices for goods that we buy from abroad have also played a big role. As economies reopened around the world, people started to buy more goods. Some businesses struggled to meet this extra demand, held back by, for example, shortages of materials and workers. That pushed up their costs and led to higher prices for consumers.

These effects are likely to continue pushing inflation up in the coming months. We expect inflation to rise to around 7% in the spring.

We expect inflation to fall back from the middle of this year. We don’t expect that energy prices will continue to rise as fast, and the shortages that are currently making it difficult for businesses to make their products should ease. We expect inflation to be close to our target in around two years’ time.

We have raised the official interest rate we set, known as Bank Rate, to 0.5% to support inflation returning to our 2% target.  We may need to raise interest rates somewhat further.  Our job is to ensure that inflation returns to our target in a sustainable way.”

Source: Bank of England

3 February 2022

Lael Brainard’s testimony before the U.S. Senate: Emphasis on inflation …

Chairman Brown, Ranking Member Toomey, and other members of the Committee, thank you for this opportunity to appear before you. I am greatly honored to be nominated by President Biden to serve as Vice Chair of the Board of Governors of the Federal Reserve System. If confirmed to this position, I look forward to continuing to work with members of this Committee.

We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades. Over the past year, unemployment has fallen by 2.8 percentage points, and growth is estimated to be around 5 1/2 percent, according to a variety of private forecasts.

But inflation is too high, and working people around the country are concerned about how far their paychecks will go. Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task.

When the pandemic struck in 2020, I worked closely alongside Chair Powell and Secretary Mnuchin and many others, with the support of Congress, to calm financial market turmoil and save American jobs and businesses. When markets stabilized, I worked to responsibly wind down the emergency facilities we established. Today the economy is making welcome progress, but the pandemic continues to pose challenges. Our priority is to protect the gains we have made and support a full recovery.

Since 2014, as a member of the Federal Open Market Committee, I have supported monetary policy that is responsive to evolving economic conditions. Our approach helped sustain the longest recovery on record with low inflation and millions of jobs.

More broadly, I have worked to safeguard and grow our economy during the Administrations of five Presidents from both parties. I have worked on the U.S. policy response to every major financial crisis over three decades. I served at the Department of the Treasury as part of the team responsible for supporting America’s recovery from the Global Financial Crisis and responding to the euro-area financial crisis. I served at the White House as part of the team helping to safeguard the American economy from the Asian financial crisis as well as financial crises in Mexico, Brazil, and Russia. In some foreign countries, I saw up close how high inflation hurts workers and families, especially the most vulnerable.

I am committed to pursuing the Federal Reserve’s congressionally mandated goals of price stability and maximum employment and to maintaining the strength and resilience of our financial system. I am committed to the independent and nonpartisan status of the Federal Reserve.

If confirmed, I look forward to supporting Chair Powell in carrying out the responsibilities assigned to the Federal Reserve and in fostering transparent communication and accountability to you and the American people. I will bring a considered and independent voice to our deliberations, drawing on insights from working people, businesses, financial institutions, and communities—large and small—across the country. I will support policies that are in the interests of the American people and based on the law and careful analysis of the evidence.

Before closing, I want to thank my husband and daughters for their steadfast support of my work. And I would like to commend the outstanding efforts of the individuals across the Federal Reserve System who work so hard every day to serve the American public.

Senators, I thank you for this opportunity to appear before you and for considering my nomination. I would be pleased to respond to any questions.

Source: Board of Governors of the Federal Reserve

Biden’s tepid response to inflation numbers should tell traders he has no answer on rising prices …

Political analysis and commentary

This morning’s consumer price index number came in at an unsurprising 7% increase in all prices between December 2020 and December 2021. In a tepid written statement, President Biden expressed contentment with a fall in the energy, natural gas, and gasoline indices. While food prices did increase, their rate of increase was lower in December 2021 than in November 2021. Mr Biden touted his American Rescue Plan, signed in March 2021, as the mechanism containing price increases and a source of the strong economic growth being seen in the United States.

The lack of enthusiasm behind the statement may be due in part to the economy’s growth. Yes, growth in the United States is positive, coming in at 2.3% annualized in the 3rd quarter of 2021. But this rate is approximately one-third of the 2nd quarter 2021 growth rate of 6.7%. When we remove energy and food price increases from CPI, done because of the volatility in those prices, we still get an annualized increase in prices faced by consumers of 5.5%.

Compounding the mixed growth results is the rise in the dollar index. Since Mr Biden’s inauguration, the dollar has increased in strength, rising approximately 4.9% in value between 20 January 2021 and 12 January 2022. Typically this means that foreign nations find it more expensive to purchase dollar-denominated goods and services. Exporters may have to reduce prices which benefits domestic consumers. The increased demand for goods and services domestically, on the other hand, could lead to an increase in prices here at home.

When evaluating the political environment surrounding inflation, traders should be wary of the narrative coming out of the Executive branch as it pertains to policies. Controlling inflation is done by controlling money supply and that feat is the responsibility of the Federal Reserve. The American Rescue Plan is budget legislation. It is fiscal policy that lays out the spending priorities of the federal government. On the flip side, you could make the argument that government, by injecting $1.9 trillion into the economy, is increasing aggregate demand for goods and services. Inflation, however, is not a consumption demand problem. It is a money supply problem, and traders should bear in mind that any narrative surrounding inflation should come from that premise.

In short, traders should take Mr Biden’s assessment of his actions pertaining to inflation with a grain of salt.

Alton Drew

12.01.2022

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

CPI: Biden, citing American Rescue Plan, sees headway in reducing inflation.

“Today’s report—which shows a meaningful reduction in headline inflation over last month, with gas prices and food prices falling—demonstrates that we are making progress in slowing the rate of price increases. At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets.

Inflation is a global challenge, appearing in virtually every developed nation as it emerges from the pandemic economic slump. America is fortunate that we have one of the fastest growing economies—thanks in part to the American Rescue Plan—which enables us to address price increases and maintain strong, sustainable economic growth. That is my goal and I am focused on reaching it every day.” — President Joseph R. Biden

Federal Reserve Bank of New York sees no changes in short-term, long-term inflation …

Short- and Medium-Term Inflation Expectations Unchanged; Job and Income Expectations Strengthen Further

NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the December 2021 Survey of Consumer Expectations, which shows that both short- and medium-term inflation expectations were unchanged. Uncertainty and disagreement about future inflation decreased at both the short- and medium-term horizons. Home price expectations rose in December but remained below their May 2021 peak. Households reported increased optimism about their labor market prospects, with earnings growth, job loss, and job finding expectations all improving. Households’ income growth expectations also improved, rising to a new series high.

The main findings from the December 2021 Survey are:

Inflation

  • Median one-year and three-year-ahead inflation expectations both remained unchanged in December at 6.0% and 4.0%, respectively. The Survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at both the one- and three-year horizons.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—decreased at the short- and medium-term horizons, retreating from their series highs recorded in November.
  • Median home price expectations increased to 5.5% from 5.0% in November. The increase was driven by those below age 60 and those who live in the “South” and “West” Census regions.
  • Expectations about year-ahead price changes fell by 3.5 percentage points for the price of gas (to 5.7%), 1.4 percentage points for food prices (to 7.8%), and 1.0 percentage point for the cost of a college education (to 8.1%). The median expected change in the price of medical care and rent remained unchanged at 9.6% and 10.0%, respectively.

Labor Market

  • Median one-year-ahead expected earnings growth increased by 0.2 percentage point in December to 3.0%. The increase was most pronounced for respondents with an annual household income below $50,000.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 0.9 percentage point to 35.2%.
  • The mean perceived probability of losing one’s job in the next 12 months decreased by 1.3 percentage points to 11.6%. Similarly, the mean probability of leaving one’s job voluntarily in the next 12 months decreased by 0.3 percentage point to 19.9%.
  • The mean perceived probability of finding a job (if one’s current job was lost) increased to 57.5% from 55.9% in November, its highest level since its pre-COVID reading of 58.7% in February 2020. The increase was driven by respondents at least 40 years old and those without a college degree.

Household Finance

  • The median expected growth in household income increased by 0.2 percentage point to 3.4% in December, a new series high. The increase was most pronounced for respondents with no more than a high school diploma.
  • Median household spending growth expectations declined to 5.5% from a series high of 5.7% in November. The decrease was driven by respondents with household income under $50,000 a year and those with no more than a high school diploma.
  • Perceptions of credit access compared to a year ago slightly improved, with more respondents saying it is easier to obtain credit than one year ago on average. Expectations for future credit availability also improved, with more respondents expecting it will be easier to obtain credit in the year ahead compared to in November.
  • The average perceived probability of missing a minimum debt payment over the next three months increased by 0.3 percentage point to 10.3%. The increase was driven by those with some college education.
  • The median expectation regarding a year-ahead change in taxes (at current income level) decreased by 0.3 percentage point to 4.4%.
  • Median year-ahead expected growth in government debt decreased by 1.6 percentage points to 10.8%, its fifth consecutive monthly decrease.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now decreased by 0.5 percentage point to 28.2% in December.
  • Perceptions about households’ current financial situations compared to a year ago improved slightly. However, more households still reported a worse situation compared to a year ago than reporting an improved situation. Year-ahead expectations about households’ financial situations also improved, with fewer households expecting to be worse off a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased slightly by 0.2 percentage point to 38.9%.


About the Survey of Consumer Expectations (SCE)

The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy.

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, this panel allows us to observe the changes in expectations and behavior of the same individuals over time. For further information on the SCE, please refer to an overview of the survey methodology here, the interactive chart guide, and the survey questionnaire.

Contact
Mariah Measey
(347) 978 3071
Mariah.Measey@ny.frb.org