A Clear Signal in a Noisy Inflation Debate

• NY Fed one-year inflation expectations rose from 3% to 3.4%.

• Three- and five-year expectations were little changed.

• It’s a signal that consumers are less worried about the long-term outlook.

If inflation were gearing up for a comeback, households would be flashing the warning signs—and they simply aren’t…

Since the start of the year, Wall Street has been fretting over the consumer outlook for prices. Economists know central bank officials watch forward looking inflation data like hawks. If policymakers see those numbers drift higher in a sustained way, they could rethink their entire monetary policy path. That’s why we’ve seen erratic swings in 10 Year U.S. Treasury yields…

The Fed’s concern is simple: rising inflation expectations can become a self‑fulfilling prophecy. If consumers believe prices will take off later, they behave differently now. They stock up. They buy early. They pull demand forward. And if households clear out inventories in the process, they push prices even higher.

But based on the latest NY Fed data, households’ inflation expectations are stabilizing. The outlook for price growth has eased in the short term and held steady in the longer term. Expectations are settling back toward pre‑pandemic norms. As long as they stay anchored, that’s a signal to the Fed that it can afford to lower interest rates whenever it believes the economy is ready. Once the current conflict with Iran is behind us, the potential for lower borrowing costs should support a steady rally in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

Recently, the New York Fed released its Survey of Consumer Expectations for March. It summarizes responses from 1,300 households on inflation, household finances, and the labor and housing markets. The survey rotates participants to keep the sample fresh.

This survey gives policymakers a window into how people think and how they’re likely to behave. These readings matter because they show whether households expect inflation to keep climbing or drift back toward normal. And based on the latest results, near‑term expectations were little changed last month…

Inflation expectations for the next 12 months rose to 3.4%, up from 3% in February. For context, the NY Fed’s records going back to 2013 show this gauge averaging just above 3.3%. The arc is clear: expectations spiked in 2021 and 2022 as prices surged, then settled back toward 3% once the pandemic stimulus faded. After a bumpy start to 2025, the measure looks range‑bound once more. That’s calmer than the headlines might suggest.

The longer‑term picture tells the same story. Consumers aren’t bracing for a new wave of price growth. The three‑year inflation expectation nudged slightly higher to 3.1% in March—still right in line with the survey’s historical norm. No sign of the runaway narrative the media keeps trying to resurrect…

Move out to five years, and the pattern holds. Expectations stayed at 3% for the seventh straight month, matching the longer‑term average based on data going back to early 2022…

As noted at the start, the Fed pays close attention to these numbers. Policymakers want to know how much support they can still pump into the economy without reigniting the long‑term inflation surge we saw in 2021. We’ve had a few bumps, but nothing that resembles a repeat episode—at least not according to the NY Fed’s latest read.

The pace of annualized inflation growth jumped to 3.3% in March, the highest since early 2025. The culprit was higher oil prices tied to the conflict in Iran. Yet Fed Chair Powell has indicated the central bank is willing to look through the shift. Core price growth is much lower, and policymakers don’t want to react too quickly to an event that could prove short‑lived in the grand scheme of things.

This is why the NY Fed’s expectations data becomes the real tell. If households remain anchored—and so far they are—the Fed doesn’t need to rush into rate hikes. In fact, if tensions in the Middle East ease sooner rather than later, the central bank could wind up with room to keep supporting domestic expansion later this year. That backdrop would help to ease borrowing costs, stoke the economy, and underpin a long‑term, steady rally in the S&P 500.

Five Stories Moving the Market:

U.S. President Donald Trump said he would indefinitely ​extend the ceasefire with Iran, hours before it was set to expire, to allow the two countries to continue peace talks – Reuters. (Why you should care – the White House said Pakistan had requested an extended deadline to allow Iran time to come up with a proposal for a long-term solution)

The U.S. and Iran have been engaging with ideas that could point to possible compromises around core issues like Iran’s nuclear program, despite high levels of mistrust on both sides and big gaps in their bottom lines – WSJ. (Why you should care – mediators said the two sides are getting closer to a framework that would include a basic understanding on curbing Iran’s uranium enrichment, what to do with enriched uranium stockpiles and reopening the strait)

Kevin Warsh repeatedly pledged to act independently if he’s confirmed as the next Federal Reserve chair, rejecting Democratic concerns he would be a “sock puppet” for President Donald Trump, who continues to demand lower interest rates – Bloomberg. (Why you should care – Warsh suggested Fed policymakers should rethink issuing forward looking interest rate guidance)

The AI spending race among the world’s largest companies is now in its third year—with no end in sight; analysts expect Microsoft, Amazon, Meta Platforms, and Google-parent Alphabet could guide for as much as $674 billion in total capital spending this year – WSJ. (Why you should care – that should continue to drive demand for data center infrastructure products like semiconductors and networking equipment)

High Bandwidth Memory makers are riding surging demand to record profits, yet their stocks are still trading at a fraction of the valuation multiples of other top artificial intelligence chip names; South Korean memory giants Samsung Electronics and SK Hynix trade at less than 6 times forward net income estimates versus nearly 20 times for Taiwan Semiconductor – Bloomberg. (Why you should care – a continued surge in AI-driven data demand is likely to boost the shares of memory makers more)

Economic Calendar:

Earnings – BA, BSX, CSX, GEV, IBM, LRCX, MCO, NOW, T, TSLA, TXN, VRT

Japan – Exports, Imports for March

U.K. – CPI for March (2 a.m.)

ECB’s Lane (Chief Economist) Speaks (3:40 a.m.)

BoE’s Breeden (Deputy Governor) Speaks (4:05 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

ECB’s Lane (Chief Economist) Speaks (9:15 a.m.)

Eurozone – Consumer Confidence for April (10 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

Treasury Auctions $13 Billion in 20-Year Bonds (1 p.m.)

ECB’s Nagel (Germany) Speaks (1 p.m.)

ECB’s Lagarde (President) Speaks (1:30 p.m.)

South Korea – GDP for Q1 (7 p.m.)