Having noted the plunge in consumer spending expectations to record lows last month [9], The Fed [10] faces an even bigger problem this month. Despite the apparent wage growth in Friday's magical BLS data, The New York Fed admits "public expectations of future income took a big hit," as the index suffered its biggest one-month decline on record. But the news gets even worse, as 3-year-ahead inflation expectations plunged to record lows (confirming the record low inflation expectations from UMich's [11]) and entirely discounting Stan Fischer's inflation excuses last week. Fianlly, as stocks have stagnated this year as wealth creator for The Fed, consumer expectations of housing price gains have tumbled to series lows. It appears a desperate-to-hike-rates fed is cornered by, as UMIch previously noted, "a disinflationary mindset is taking hold."
Triple whammy... Income - Down; Inflation - Down; Housing - Down...
[12]
As The New York Fed explains, [10]
According to a Survey of Consumer Expectations report Monday by the Federal Reserve Bank of New York said, one-year ahead expected inflation ticked up to 2.82% from 2.73% the prior month. But three-year ahead expected inflation ticked down to 2.78% from 2.84% in September, with October's reading resting at its lowest level in a survey that goes back to June 2013.
The bank also said the public's expectations of future income took a big hit. Median household income expectations fell to a 2.3% rise, from September's 2.8%. The New York Fed noted this was the biggest one-month drop in the history of the survey and that it was spread across demographic groups.
The findings on inflation expectations are unlikely to be welcomed by Fed officials as they contemplate raising short-term interest rates next month. Central bankers believe where the public believes inflation will be in the future strongly influences where actual price readings come in. The Fed has failed to meet its 2% price rise target for over three years, but officials have pointed to the relative stability of expectations to build confidence inflation will eventually rise back to desired levels.
Last week, New York Fed leader William Dudley noted that there is been a steady decline in inflation expectations in his bank's survey, and he said if expectations "move lower from here, that would increase our level of concern" about successfully getting inflation back to desired levels.
And finally, the oddly un-spun truthiness of The New York Fed...
CONSUMER SURVEY: Household income expectations fell sharply to 2.3% https://t.co/Vju3e5odh9 [13]
— New York Fed News (@NYFed_News) November 9, 2015 [14]
So the next time we hear from The Fed quoting "surely wages will grow soon," it is clear this is not the view of the average American, who, is supposedly responsible for the aggregate demand after all.
