By Tom Ozimek
Near-term inflation expectations declined in June while Americans reported greater confidence about their finances and job prospects, according to a new report from the Federal Reserve Bank of New York.
The New York Fed’s Survey of Consumer Expectations, released on July 8, showed median inflation expectations fell by 0.2 percentage point to 3.0 percent for the year ahead. Expectations for inflation three years out remained at 3.0 percent, while five-year expectations held at 2.6 percent.
Uncertainty about future inflation also dropped at the one- and three-year horizons, though it stayed steady at the five-year mark. This decline in uncertainty suggests that consumers feel steadier about near-term price trends, which could help stabilize household spending and financial planning.
Americans have also become more upbeat about the labor market. The average perceived chance that the U.S. unemployment rate will be higher a year from now fell by 1.1 percentage points to 39.7 percent, the Fed report showed.
The likelihood of losing one’s job in the next 12 months dipped 0.8 percentage points to 14.0 percent, the lowest in six months. Meanwhile, the chance of voluntarily leaving a job rose slightly to 18.8 percent, signaling confidence that workers could find better opportunities—generally a sign of labor market strength.
The June data adds to a trend seen in May, when consumers began to show less concern about inflation and the economy after several months of declines in economic sentiment.
Rise in Consumer Confidence
Consumer confidence had surged following the November election, driven by expectations that President Donald Trump’s pro-business agenda would boost economic growth and household wealth. Sentiment deteriorated in subsequent months as inflation worries rose, largely due to uncertainty over Trump’s tariff policies.
As trade tensions eased, consumer sentiment rebounded. The latest Consumer Sentiment Index from the University of Michigan jumped to 60.7 in June, a 16.3 percent increase from May and well above forecasts of 53.5 percent. It was the first rise in six months.
“The improvement was broad-based across numerous facets of the economy, with expectations for personal finances and business conditions climbing about 20 [percent] or more,” Joanne Hsu, director of surveys of consumers, said in the report.
Year-ahead inflation expectations fell from 6.6 percent in May to 5.0 percent in June, the Michigan report showed. Long-run inflation expectations receded for the second straight month, falling back from 4.2 percent in May to 4.0 percent last month. Both readings are at their lowest levels in several months.
“Consumers’ fears about the potential impact of tariffs on future inflation softened somewhat in June,” Hsu said. “Still, inflation expectations remain above readings seen throughout the second half of 2024, reflecting widespread beliefs that risks to inflation have not fully abated.”
Tariff Uncertainty
Concern continues over whether Trump’s tariff policies will push inflation higher. So far, the administration has imposed a baseline 10 percent tariff on nearly all countries, while certain nations, such as China, face higher rates. Additional “reciprocal” tariffs have been announced but suspended until Aug. 1.
Federal Reserve officials remain cautious. Fed Chair Jerome Powell told Congress in late June that the central bank would wait for more data from June and July before concluding whether tariffs are stoking inflation.
“We are perfectly open to the idea that the pass-through to consumers will be less than we think,” Powell said, adding that this could influence interest-rate decisions. But he warned that lower rates set too soon, before inflation is sustainably under control, could harm the Fed’s credibility and let inflation expectations drift upward.
“If we make a mistake, people will pay the cost for a long time,” Powell said.
Richmond Fed President Tom Barkin said in late June that tariff impacts so far have been modest but cautioned that “more pressure is coming.”
Meanwhile, data suggest that Trump’s tariffs haven’t driven prices higher so far.
A new report from the White House Council of Economic Advisers found that prices for imported goods dropped 0.1 percent from December 2024 through May 2025, even though overall goods prices rose 0.4 percent in that period.
“Imported goods are actually getting cheaper,” said Steve Miran, chair of the Council of Economic Advisers. The report concluded that fears about tariffs sharply accelerating inflation have not materialized.
“The prices of imported goods have not only fallen this year, but also declined faster than overall goods prices since February,” the report states. “These findings contradict claims that tariffs or tariff-fears would lead to an acceleration of inflation.”
Some economists warn the biggest impact could come when the higher reciprocal tariffs are imposed in August. While the Council of Economic Advisers’ report suggests that the 10 percent baseline tariffs have been absorbed without significant consumer price hikes, steeper rates—such as the planned 25 percent tariffs on Japan and South Korea—could be harder for businesses to swallow without passing on costs to consumers.
On July 7, Trump sent letters to 14 countries warning that tariffs ranging from 25 percent to 40 percent would take effect Aug. 1 if no trade deals are reached. The rates range from 25 percent on Japan, Kazakhstan, Malaysia, South Korea, and Tunisia, and 40 percent on Burma also known as Myanmar and Laos on the high end.
Analysts at ING said the uncertainty around tariffs—such as changes in levy rates and shifting deadlines for when they go into effect—continues to weigh on the economy.
“The tariff rollercoaster ride continues,” they wrote in a recent note. “While the ‘letters’ leave some more room for continued frontloading–although shipping times need to be considered–and negotiations, they also mean that the tariff saga continues.”
Andrew Moran contributed to this report.
