The Federal Reserve Bank of New York reported on Tuesday that Americans are expecting higher inflation over the near term and worsening personal finances, a shift the bank tied to a surge in energy costs linked to the war in the Middle East. The results come from the March release of the New York Fed's Survey of Consumer Expectations.
One-year inflation expectations rose to 3.4% in March, up from 3.0% in February, returning that measure to the level recorded in December. The New York Fed highlighted that the uptick in short-term inflation expectations was driven by a large increase in projected gasoline prices, which rose 5.3 percentage points to 9.4% - the largest jump since March 2022.
The survey noted that the March 2022 comparison was notable because that earlier spike followed an energy shock tied to the Russian invasion of Ukraine - a disruption that, the report said, upended global energy markets in a manner similar to the impact from the Middle East war started by President Donald Trump and Israel.
By contrast, longer-range inflation expectations were steadier. Expectations for inflation three years out edged up to 3.1% from 3.0% the prior month, while the five-year outlook held steady at 3.0%. All of these expected rates remain above the Federal Reserve's 2% objective.
The New York Fed's findings emphasized the difficulty policymakers continue to face in returning inflation to target. The report said the war, together with the lingering effects of the import tax increases implemented under the Trump administration, has interrupted what had been a trajectory toward lower price pressures.
New York Fed President John Williams, speaking in an interview on Bloomberg television early on Tuesday, tied the recent energy moves directly to headline inflation, saying the war-related energy shocks "will directly go into headline inflation because energy prices are an important component of that." He added that he expects headline inflation to be elevated in the middle of the year and estimated it would come in around 2.75% for the year.
Williams also cautioned that while inflation is likely to be higher this year, he viewed monetary policy as "well positioned" and said policymakers were monitoring economic developments before making further adjustments.
At present, the Federal Reserve's target range for the federal funds rate stands between 3.50% and 3.75%. Officials at last month's policy meeting factored in one rate cut for the year.
Fed officials are likely to welcome the relative stability of longer-run inflation expectations, the survey said, because those measures suggest the public remains confident that the recent energy shock will not cause a broader and more persistent inflationary breakout. Policymakers generally view expectations as an important determinant of actual inflation.
On household finances and the labor market, the survey painted a more pessimistic picture. Respondents reported growing gloom about both their current financial condition and their outlook for the future. Views of the job market were mixed. The report highlighted that expectations for the unemployment rate a year from now rose to their highest level since April 2025.
While the New York Fed's March survey signals that short-term inflation expectations have moved higher, the divergence between near-term and longer-term expectations may be a focal point for policymakers as they weigh the outlook for monetary policy and the economy.