NY Fed March survey finds jump in near-term inflation expectations?

By Michael S. Derby

April 7 (Reuters) - Americans, rattled by surging energy prices tied to war in the Middle East, are expecting higher near-term inflation and fresh challenges to their personal financial situations, the Federal Reserve Bank of New York reported on Tuesday.

The bank said as part of the March findings of its latest Survey of Consumer Expectations that inflation a year from now is seen at 3.4%, up from 3% last month. The jump left that frequently volatile reading where it was in December.

The big increase in near-term inflation expectations came as the projected rise in gasoline prices, up 5.3 percentage points to 9.4%, was the highest since March 2022. That comparison was notable as it came from a similar energy shock tied to the Russian invasion of Ukraine, which, like the Middle East war started by President Donald Trump and Israel, upended global energy markets.

The jump in near-term inflation expectations is not surprising given that they are highly reactive to events. The Fed survey found that longer-range inflation projections were more muted: Inflation projections for three years from now stood at 3.1% in March from 3% the prior month, while the inflation outlook for five years from now was stable at 3%.

All the expected levels of inflation stand well above the Fed's 2% target. The Fed has been struggling to get inflation back to that target and the war, coupled with the ongoing overhang of Trump's import tax increases, has thwarted what had been a trajectory of price pressure returning to the Fed's goals.

In an interview on Bloomberg's television channel early on Tuesday, New York Fed President John Williams said the ?war- related energy shocks "will directly ?go into headline inflation because energy ?prices ?are an important component of that...I ?expect headline inflation to actually be elevated, ?you know, in ?the ?middle of this year" and come in at around ?2.75% ?for the ?year, he added.

That said, Williams reiterated that he views monetary policy as "well positioned" and in a good place while policymakers see how the economy performs. The Fed's interest rate target rate range currently stands between 3.5% and 3.75%, with officials having penciled in a single rate cut this year at last month's policy meeting.

The stability of longer-run inflation expectations is likely to cheer Fed officials, as they show the public is retaining confidence that the war is not engineering a broader impact on inflation. Fed officials largely agree that where inflation is seen heading has a strong influence on where it is today.

The New York Fed survey found that respondents have grown more pessimistic about their current and future financial situation, while holding mixed views on the state of the job market. The report noted that expectations for the unemployment rate a year from now were at the highest level since April 2025.

(Reporting by Michael S. Derby; Editing by Andrea Ricci)