Middle Class Now Terrified Of Inflation

There’s good news and there’s bad news if you’re the Fed and you’re concerned about inflation expectations.

I’ll start with the bad news because, as a Bloomberg Opinion columnist put it Monday, “There’s a bull market in macro doom.”

Median year ahead expectations jumped to a harrowing 6.6% last month, according to the latest installment of the New York Fed’s consumer survey. That’s a new record (figure below).

As a reminder: The data only goes back to 2013.

Unfortunately, the jump in near-term expectations was of the “across-the-board” variety. Indeed, one year-ahead expectations rose for every age, education and income cohort.

That’s the bad news. The good news is that medium-term expectations actually receded a bit in March from February, and remained well off the highs seen in Q3 and Q4 of 2021. That’s notable considering geopolitical developments and the accompanying surge in commodity prices, which was front-page news for most of the month.

The spread between one-year ahead expectations and the three-year outlook hit a new wide (figure above).

The demographic breakdown was notable in several respects. The “some college” cohort is now more worried about the next 12 months than the other two education buckets. Similarly, year ahead expectations for the $50,000-$100,000 income cohort were higher than those for households making less than $50,000 and those making $100,000 or more (figure below).

That’s suggestive of middle class angst. On the three-year horizon, the least educated consumers were actually the most sanguine. The same was true of those earning under $50,000.

Not surprisingly, households’ perceptions of their current financial situation compared to a year ago deteriorated. The New York Fed also noted that respondents turned more pessimistic about their household’s financial situation for the year ahead. Neither of those developments bodes well for Democrats in the midterms.

Spending growth expectations, meanwhile, hit a new record. High, that is.