U.S. Consumer Inflation and Labor Market Expectations Show Improvement

In January 2026, the Federal Reserve Bank of New York reported a notable decline in U.S. consumer inflation expectations, with households anticipating a 3.1% increase in prices over the next year, down from 3.4% in December 2025. This shift indicates a growing optimism regarding inflation, as expectations for three- and five-year horizons remained stable at 3%. The survey also highlighted a slight improvement in labor market perceptions, with respondents feeling less likely to lose their jobs and more confident about finding new employment if necessary.

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The January Survey of Consumer Expectations revealed several significant trends:

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• Inflation Expectations: The median expectation for inflation over the next year decreased to 3.1%, matching levels from January 2025. Longer-term expectations for inflation remained unchanged at 3% for both three- and five-year periods.

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• Job Security: The perceived probability of losing a job in the next 12 months fell to 14.8%, while the likelihood of finding a new job within three months rose to approximately 45.6%.

Bloomberg

• Earnings Growth: Expectations for earnings growth increased slightly to 2.7%, particularly among households earning under $50,000 annually.

Main Street Senses an Economic Turn, NY Fed Says

The Federal Reserve's recent decisions reflect these consumer sentiments. After three consecutive interest rate cuts in late 2025, the Fed opted to hold rates steady in January 2026, balancing the need to support a fragile job market while maintaining pressure on inflation. Fed officials, including Vice Chair Philip Jefferson, expressed confidence that inflation would gradually return to target levels, attributing this to stable long-term inflation expectations.

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Despite the positive trends in inflation and job market expectations, concerns persist regarding household financial situations. Many respondents reported feeling worse off compared to the previous year, indicating a disconnect between improved inflation perceptions and actual financial well-being. The University of Michigan's consumer sentiment index also reflected low consumer confidence, suggesting that while inflation fears may be easing, broader economic anxieties remain.

Reuters

While the New York Fed survey indicates a cooling in inflation expectations, other reports, such as those from the Bureau of Labor Statistics, show mixed signals in the labor market, including a decrease in job openings and an uptick in layoffs. This discrepancy highlights the complexity of the current economic landscape and the challenges facing policymakers.

Bloomberg

• “the consumer is filling out surveys that sound really negative, and then spending.” — Jerome Powell, Chair of the Federal Reserve

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• “My view is that we are still perceived of as being credible now with respect to the current situation with inflation being above target,” — Philip Jefferson, Vice Chair of the Federal Reserve

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As the Federal Reserve navigates these mixed signals, the interplay between consumer expectations and actual economic conditions will be crucial in shaping future monetary policy decisions.

Reuters