U.S. Consumers Expect Higher Inflation, Growing Pessimism Hits Household Finances

Survey Highlights Rising Economic Concerns

U.S. consumers are increasingly worried about rising prices and worsening household finances, according to the latest findings from the New York Federal Reserve’s February 2025 Survey of Consumer Expectations (SCE). The survey reveals that the median expected inflation rate one year from now has climbed to 3.1%, up by 0.1 percentage points from the previous month. This marks a shift from a steady decline that saw the figure drop to 2.9% in October of the prior year, followed by three months of stability at 3.0%. Meanwhile, longer-term inflation expectations for three and five years remain unchanged at 3.0%, suggesting that while short-term concerns are growing, consumers still see price stability over the longer horizon. Analysts attribute this uptick in near-term inflation fears to policy shifts under the Donald Trump administration, particularly the introduction of higher tariffs and stricter immigration controls, which are widely believed to drive up costs for goods and services.

The survey paints a broader picture of economic unease, with American households expressing significantly more pessimism about their financial future. The proportion of respondents who believe their household finances will deteriorate over the next year surged to 27.4%, a sharp increase from January’s 21.0%. This level of concern is the highest recorded since November 2023, when it reached 28.7%, reflecting a growing sense of vulnerability among consumers. The New York Fed noted that this pessimism is particularly pronounced in expectations around unemployment, debt delinquency, and access to credit, all of which have worsened noticeably since the last survey. For instance, the average expectation of unemployment one year from now jumped by 5.4 percentage points to 39.4%, the highest since September 2023, while the perceived likelihood of missing a minimum debt payment within the next three months rose by 1.3 percentage points to 14.6%, a peak not seen since April 2020. These figures underscore a deepening anxiety about job security and financial stability, likely fueled by economic uncertainty tied to recent policy changes.

Adding to the gloomy outlook, consumer confidence in the stock market has also taken a hit. The share of respondents expecting higher stock prices one year from now dropped to 37.0%, down 3.3 percentage points from the previous month and the lowest since December 2023, when it stood at 36.7%. This decline suggests that Americans are bracing for potential market turbulence, possibly linked to the broader economic implications of Trump’s trade policies. Higher tariffs, for example, could increase the cost of imported goods, squeezing corporate profits and dampening investor sentiment. Reports from financial outlets like Investopedia have highlighted how such policies have already contributed to market declines in early 2025, with stocks facing pressure from tariff-related concerns and broader economic fears.

The rise in short-term inflation expectations aligns with remarks from Federal Reserve Chair Jerome Powell, who recently acknowledged an uptick in some near-term inflation indicators during a public address. Powell emphasized, however, that longer-term expectations remain anchored and consistent with the Fed’s 2% inflation target, signaling a cautious approach to managing these shifts. This distinction is critical, as stable long-term expectations suggest that consumers and markets still trust the Fed to keep inflation in check over time, even as short-term pressures mount. Nonetheless, the combination of tariff increases and immigration restrictions is seen as a key driver of the current unease. Economists point out that tariffs could raise the price of everyday goods, from electronics to clothing, while tighter immigration policies might shrink the labor pool, pushing up wages and, in turn, prices. Publications like The New York Times and Reuters have noted that these policies are stoking inflationary fears, with some experts warning of a ripple effect across the economy.

For households, the growing pessimism about finances reflects more than just inflation worries. The survey’s findings on unemployment expectations and debt repayment struggles highlight a broader sense of economic precarity. With nearly 40% of respondents anticipating higher unemployment, and more than one in seven fearing they won’t meet debt obligations, the data points to a significant erosion of consumer confidence. This could have real-world consequences, such as reduced spending, which might slow economic growth. The New York Fed’s report specifically flagged these deteriorating expectations as a red flag, noting that households appear increasingly concerned about their ability to weather potential economic shocks. This sentiment is echoed in broader media coverage, with outlets like Reuters reporting a sharp drop in consumer confidence in February 2025, driven in part by uncertainty over Trump’s economic agenda.

The interplay between policy, inflation, and consumer sentiment is complex. Trump’s tariff proposals, aimed at protecting domestic industries, are expected to raise the cost of imports, a move that Nomura Connects predicts could boost inflation while hampering investment growth in 2025. Similarly, immigration crackdowns could tighten labor markets, adding upward pressure on wages and prices. These factors are likely contributing to the short-term inflation expectations captured in the SCE, even as longer-term views remain steady. For now, the Fed appears focused on monitoring these trends without signaling immediate action, a stance that balances recognition of current pressures with confidence in its long-term framework.

Ultimately, the February 2025 Survey of Consumer Expectations offers a window into a pivotal moment for the U.S. economy. Consumers are grappling with heightened fears of rising prices and financial strain, driven by a mix of policy shifts and economic signals. While the stability in three- and five-year inflation expectations provides some reassurance, the immediate outlook is clouded by pessimism, with households bracing for tougher times ahead. As the effects of tariffs and other policies unfold, their impact on prices, jobs, and consumer behavior will likely shape the economic narrative for the remainder of the year, making this a critical period for policymakers and households alike.