Category: Retail and Consumer

Americans appeared more optimistic about inflation in May, as expectations for rising prices declined across the board, according to a new report from the Federal Reserve Bank of New York. The improvement coincides with President Donald Trump’s decision to ease back on his sweeping tariff threats, providing some relief to consumers and policymakers alike.

The Fed’s Survey of Consumer Expectations, released Monday, showed that the anticipated inflation rate one year from now fell to 3.2%, down from 3.6% in April. It marks one of the sharpest monthly drops in recent years and suggests Americans are growing more confident that inflation may not spiral out of control.

Longer-term inflation outlooks also improved. The three-year expectation ticked down to 3%, while the five-year projection eased to 2.6%. While still above the Federal Reserve’s 2% target, the declines point to a growing belief among households that price pressures could be moderating.

The shift comes after the White House softened its stance on some of its more aggressive trade proposals. In April, President Trump announced sweeping 10% tariffs on all U.S. imports and floated the idea of “reciprocal” duties on specific countries. But by early May, the administration introduced a 90-day negotiation period and paused additional tariff hikes, calming fears of an escalating trade war.

The easing rhetoric appears to have had a measurable effect on consumer sentiment, at a time when officials at the Federal Reserve are closely monitoring expectations to determine the future path of interest rates.

“The inflation outlook is coming down, even as tariff collections rise,” said National Economic Council Director Kevin Hassett in an interview Monday. “It runs counter to the narrative that tariffs automatically lead to higher inflation.”

April’s core Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure, remained at 2.5% — stable, but not accelerating. Headline PCE, which includes food and energy, dipped slightly to 2.1%, one of the lowest levels in over three years.

The New York Fed’s survey also found that inflation expectations declined across several major spending categories. While Americans still expect food prices to climb by 5.5% over the next year — up slightly from April — they foresee smaller increases in gas, rent, medical care, and college tuition.

In addition to inflation, the report included promising data on labor market confidence and household finances. The percentage of respondents who believe they’ll lose their job in the next 12 months dropped to 14.8%, a slight but notable improvement. Meanwhile, fewer Americans expect to miss a minimum debt payment in the near term, with that figure falling to 13.4%, the lowest since January.

Consumers also seem to be gaining confidence in the markets. The share of respondents expecting stock prices to be higher a year from now rose to 36.3%, reflecting optimism despite geopolitical uncertainty.

As policymakers weigh inflation, tariffs, and rate decisions, these improving expectations may offer a signal: Americans are cautiously optimistic that the worst inflation fears could be fading.