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Relief on Prices as White House Softens Trade Rhetoric
For the first time in quite a while, it seems that Americans are feeling a bit less worried about inflation. Recent information from the New York Federal Reserve shows that changes in the government’s approach, especially former President Donald Trump easing up on tariff threats, have helped reduce those fears.
In May, people’s expectations for short-term inflation dropped significantly to 3.2%, which is down 0.4 percentage points from April. The three-year forecast also decreased to 3%, and the five-year outlook is now at 2.6%.
While these numbers are still above the Federal Reserve’s goal of 2%, the overall decline indicates that families might be feeling a bit more secure financially. For the current administration, especially with an upcoming election, this could definitely be seen as a positive development.
Inflation Outlook Calms Amid Trade Truce
Recently, Trump decided to put his plans for new tariffs on hold. He introduced these proposals back in April, calling it “liberation day,” and they included a blanket 10% tax on all imports and additional tariffs on countries he felt were taking advantage of the U.S. However, he faced criticism from both international allies and American businesses, which led him to delay these measures, at least for now. There’s a 90-day negotiation period, which will end in July.
According to Lisa Romero, a senior economist at Harborfront Analytics, this pause likely helped ease inflation expectations. She pointed out that markets and households pay close attention not just to what leaders do, but also to what they plan to do.
Prices Still High, But Trends Are Encouraging
Inflation expectations are still quite high, but we saw a noticeable drop in May, the biggest decrease in over a year. The New York Federal Reserve, which has a more steady consumer survey compared to others, points to a general easing of worries about rising prices.
Looking at the Fed’s favorite measure for inflation, the personal consumption expenditures (PCE) index was reported at 2.1% in April, marking the lowest level we’ve seen in over three years. When we exclude the ups and downs of food and energy prices, the core PCE stood at 2.5%. That’s still a bit high, but it has remained stable.
Interestingly, people expect food prices to jump by 5.5% over the next year, which is a significant rise from April and the highest since last October. On the other hand, they anticipate gas prices to increase at a slower rate of 2.7%, and they see more modest rises in rent, healthcare, and college costs.
Confidence Up, Job Worries Down
The May survey showed some positive trends beyond just price changes. Fewer people are worried about losing their jobs in the next year, with only 14.8% expressing concern, a drop from 15.3%. Additionally, fewer Americans are anxious about missing a minimum debt payment soon.
Andrew Kim, a behavioral economist at Midtown Policy Group, noted, “People are still careful, but they aren’t freaking out.” He explained that for many households, having stability is more important than striving for perfection.
The stock market is also gaining a bit of confidence, as around 36.3% of those surveyed believe stock prices will rise over the next year, which is a slight improvement from April.
A Tentative Calm—For Now
Trump’s recent decision to ease up on tariffs has definitely bought some time, but it’s not a long-term solution. The 90 days they’ve set will pass quickly, and if trade tensions flare up again, it could really harm the slight improvement we’ve seen in how consumers feel.
For the Federal Reserve, which is trying to keep inflation in check without pushing the economy into a recession, this new data gives some hope. Romero noted, “The outlook isn’t perfect, but it’s heading in a positive direction. This should stop the Fed from overreacting right away.”
With the election chatter picking up and trade talks still up in the air, the dip in inflation concerns might not last. But for now, consumers are feeling a bit relieved.
