Gas prices are listed at an Exxon gas station in Alexandria, Virginia, on October 2, 2026, exceeding $4.70 per gallon.
Mehmet Ethel | Anadolu | Getty Images
Concerns about inflation intensified in September, with the New York Fed’s monthly survey showing short-term outlooks at the highest level in about three and a half years.
The central bank’s consumer expectations survey showed the median inflation outlook for the next 12 months was 3.9%, up 0.3 percentage points from August and the highest since 4.1% in May 2023.
Similarly, the survey found that household spending growth is expected to reach 5.5%, also up 0.3 percentage points from the previous month and the highest level since May 2023.
The results come as Fed officials struggle to set monetary policy appropriately as inflation remains well above the central bank’s 2% target.
Many in the market believe that the Federal Open Market Committee will meet in late October and leave the benchmark interest rate unchanged. Inflation was lower than expected in August, according to the Fed’s recommended metrics. In recent days, several key officials, including New York Fed President John Williams, have said policymakers can afford to take their time when considering where to set interest rates.
The study found that prospects are firmly entrenched further down the timeline. The outlook for the next three years rose by 0.1 percentage point to 3.3%, but the outlook for the next five years remained unchanged at 3%.
However, market-based indicators are less positive.
One of the closely watched metrics in the bond market, known as breakeven, shows a five-year outlook of around 2.35%, the highest level this year. Treasury yields have risen sharply in recent weeks, reaching levels not seen since the beginning of this century.
Fed officials believe that expectations are a major driver of inflation.
While we expect the Fed to hold steady at its next meeting, markets are pricing in a more aggressive central bank in the coming years. The federal funds futures contract suggests an interest rate of 5.58% in five years. The current fund interest rate is targeted at 3.75-4%.
