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Consumer expectations surveyed by the Federal Reserve Bank of New York showed that average consumer inflation expectations fell by 0.1 percentage points to 2.6% in one and three years. Inflation uncertainty has also declined.
At the end of July, the Federal Reserve cut interest rates for the first time since 2008, citing a range of economic concerns, including the Sino-US trade war. Another factor contributing to interest rate cuts is that annual inflation has not met the Federal Reserve's target of 2% for a long time. The core personal consumption expenditure (PCE), the Fed's preferred inflation indicator, rose 1.6% year-on-year in June.
If inflation is expected to continue to fall below the Fed's target, policymakers will lose credibility. Low inflation is also more likely to reduce interest rates to near zero, thereby losing the ability to further stimulate economic activity. The Fed's current short-term interest rate target ranges from 2.00% to 2.25%.
The market is betting that the Fed will cut interest rates again as early as next month's meeting. In addition to other data reflecting inflationary pressures, the New York Federal Reserve's inflation survey is also an indicator considered by the Federal Reserve. The survey was conducted on a rotating group of about 1,300 household heads. The lowest recorded level since 2013 is about 2.4%.
Analysts at BMO Capital Markets Corp. said the latest figures were "disturbing developments" given the low market inflation expectations. "The market is confident (the Federal Reserve's Interest Rate Committee) will continue to cut interest rates and provide monetary policy easing, but it is uncertain whether this will lead to real inflationary pressures," they wrote.


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