NY Fed inflation expectations jump despite lower gas prices
The New York Fed Survey of Consumer Expectations shows that Americans are growing worried about the high cost of living, as one-year inflation expectations rose from 3.5% in May to 3.7% in June, the highest level since September 2023.
For the next three years, the poll showed that households expect inflation to rise from 3.1% to 3.3%, and for the next five years, it was unchanged at 3%.
The survey showed that expectations for gasoline prices hit their lowest level since August 2022, with US consumers more upbeat about current and future personal finances. The poll showed that households' labor market expectations are improving.
Market’s reaction
The US Dollar Index (DXY), which tracks the buck’s performance versus a basket of six currencies, is up 0.10% after hitting a two-day low of 100.81. The Greenback has recovered some ground amid geopolitical woes and elevated inflation expectations, which increase the chances of further tightening towards the end of the year.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
