The New York Federal Reserve's Survey of Consumer Expectations recorded a sharp uptick in inflation concerns in September, with the median one-year inflation outlook rising to 3.9%, up 0.3 percentage point from August and marking the highest level since May 2023.
The survey, a monthly gauge of household inflation expectations, reflects persistent concern about price pressures even as the Fed's preferred inflation measure came in lower than expected in August. The central bank targets 2% inflation.
The survey also found households expect spending growth of 5.5% over the next year, up 0.3 percentage point and the highest since May 2023. Both figures represent a deterioration in expectations from the prior month.
The longer-term outlook appears more stable. The three-year inflation expectation edged up 0.1 percentage point to 3.3%, while the five-year view remained flat at 3%. Fed officials regard inflation expectations as a key driver of actual inflation outcomes.
Energy costs anchor the inflation problem. Gasoline prices jumped nearly 4% in August alone, according to the Bureau of Labor Statistics. Fuel oil surged more than 10% in the same period. At the consumer level, utilities have filed for $23.1 billion in rate increases so far in 2026, according to PoweLines, a nonpartisan consumer advocacy group. The third quarter alone saw requests totaling $4.5 billion, the largest sum for any third quarter on record. Survey respondents expect gas prices to rise 4.8% over the next year, up 0.2 percentage point from August.
Markets are pricing in more aggressive Fed action over time, despite expectations that the Federal Open Market Committee will hold rates steady at its October meeting. Fed funds futures contracts imply a rate of 5.58% in five years. The current federal funds rate is targeted between 3.75% and 4%. Treasury yields have surged in recent weeks, hitting levels not seen since the early 2000s. The five-year break-even rate stands near 2.35%, around its highest level of the year.
New York Fed President John Williams and other officials have indicated policymakers can afford to take their time when evaluating the proper rate setting.