Household worries over finances hit highest level since July 2022, New York Fed survey shows

• The net outlook between those expecting better versus worse conditions hit its lowest level since October 2022, with 36% expecting their situations to worsen compared to only 22.9% expecting improvement
• One-year inflation expectations rose marginally to 3.5%, while three-year and five-year expectations held steady at 3.1% and 3%, respectively, remaining above the Fed's 2% target
• Markets expect almost no chance of a rate cut at the June 17 Fed meeting, with rising expectations for a quarter-point hike by year-end amid elevated inflation concerns linked to the Iran war's impact on energy prices

Summary: Household Financial Worries Surge to Highest Since July 2022

Key Findings:

U.S. household financial concerns reached their highest level since July 2022, according to the New York Federal Reserve's May Survey of Consumer Expectations released Monday. The survey revealed significant deterioration in consumer sentiment despite relatively stable inflation expectations.

Financial Outlook Data:

• 36% of respondents expect their financial situation to worsen over the next year
• Only 22.9% anticipate improvement
• The net sentiment gap (better vs. worse conditions) fell to its lowest point since October 2022

Inflation Expectations:

Despite heightened financial anxiety, inflation outlook remained largely unchanged:

• One-year inflation expectation: 3.5% (up 0.1 percentage point)
• Three-year outlook: 3.1% (unchanged)
• Five-year outlook: 3.0% (unchanged)

Sector-Specific Expectations:

• Gasoline prices: 5% (down 0.1 percentage point)
• Food prices: 5.8% (up 0.6 percentage point)
• Rent: 7.4% (up 1.4 percentage points)
• Household spending growth: 5% (down 0.4 percentage point)

Market Context:

The survey comes amid concerns over the Iran war's impact on energy prices and broader inflation. The Bureau of Labor Statistics is expected to release May Consumer Price Index data Wednesday, with economists forecasting 4.2% headline inflation and 2.9% core inflation—both above the Federal Reserve's 2% target.

The Federal Open Market Committee meets June 17, with markets pricing minimal chance of rate cuts and increasing expectations of a quarter-point hike by year-end.