U.S. Consumer Inflation Expectations Remain Stable Despite Iran Conflict

On May 7, Jin10 reported that a survey by the New York Federal Reserve indicates that despite new price pressures from the Iran conflict, U.S. consumers' long-term inflation expectations remained stable in April. According to Jin10, the inflation outlook for the next 12 months has slightly increased, but the expectations for the next three or five years have not changed compared to the March survey. This suggests that consumers believe the price impact from the conflict will be temporary. Federal Reserve officials closely monitor long-term inflation expectations as they serve as a measure of the Fed's credibility. If people lose confidence in the Fed's ability to control inflation over the long term, they may accelerate purchases before inflation erodes their purchasing power. Increased consumer spending could perpetuate the inflation that the Fed is trying to curb. Other indicators of long-term inflation expectations are more concerning. The University of Michigan's April consumer survey found that inflation expectations rose to their highest level since October 2025. Earlier this month, market-based inflation expectation indicators showed the 10-year breakeven inflation rate reached its highest level since early 2023. The New York Fed's April survey also revealed consumer unease about the labor market. On average, consumers believe there is a 44% probability of the unemployment rate rising in the next 12 months, marking the highest level in a year.