New York Fed consumer survey records lowest three-year inflation outlook.

• The three-year inflation outlook, according to the New York Fed's Survey of Consumer Expectations, is at 2.3%, which is the lowest in the data series dating back to June 2013.
• The expected increase in household spending is 4.9%, which is 0.2 percentage point lower than in June and the lowest reading since April 2021.

The New York Federal Reserve reported on Monday that consumers' confidence in July that inflation will be less of an issue in the future decreased, with the three-year outlook reaching a new low.

According to the latest survey, consumers expect inflation to remain high for the next year before gradually decreasing in the following years.

The three-year portion of the survey revealed that consumers predicted inflation at only 2.3%, a decrease of 0.6 percentage point from June and the lowest in the history of the survey, dating back to June 2013.

Expectations about inflation are crucial for investors, as they determine whether the Federal Reserve will lower interest rates next month. Consumers and business owners will adjust their behavior based on their beliefs about future price and labor cost increases.

The Labor Department will release its monthly inflation reading, the consumer price index, on Wednesday. It is predicted to show an increase of 0.2% in July and an annual rate of 3%, according to Dow Jones estimates. Although this is still a full percentage point away from the Fed's 2% goal, it is about one-third of where it was two years ago.

The likelihood of a quarter percentage-point rate cut in September and a full percentage-point rate cut by the end of the year has been fully priced into the markets.

Despite the improvement in the medium-term outlook, inflation expectations remained unchanged at 3% and 2.8% for one and five years respectively.

However, there was some other good inflation news in the survey.

The price of gas is expected to increase by 3.5% over the next year, which is 0.8 percentage point less than what was predicted in June. Meanwhile, food is predicted to see a rise of 4.7%, which is 0.1 percentage point lower than what was predicted a month ago.

The current inflation surge began in April 2021, and household spending is expected to increase by 4.9%, which is 0.2 percentage point lower than in June and the lowest reading since then.

The outlook for college costs and rent costs has improved, with expectations for college costs increasing by 7.2% and rent costs rising by 7.1%.

Despite the increasing unemployment rate, job security expectations improved, with the probability of losing one's job decreasing by 0.5 percentage points to 14.3%, while the likelihood of leaving one's job voluntarily increased by 0.2 percentage points to 20.7%, reaching its highest level since February 2023.