U.S. Consumers See Reduced Risks of Inflation and Debt Default

The latest survey from the New York Federal Reserve Bank revealed that U.S. consumers are experiencing increased confidence in the easing of inflation and recovery of the job market. For the first time since May, a significant decrease in the perceived level of debt default risk was observed.

According to the survey, the average inflation expectation for the coming year has dropped to 2.9%, down from 3.0% in September, marking the lowest projection in four years. Inflation expectations for three-year and five-year periods also declined to 2.5% and 2.8%, respectively. These findings align with the Federal Reserve's efforts to control inflation and shift towards lower interest rates while maintaining price stability. The Fed has lowered interest rates twice since September, with the most recent cut occurring last week.

The survey results came after the Fed's inflation measure, which it uses to achieve its annual 2% target, fell to 2.1% in September, the lowest level since February 2021. This represents a significant drop from the highest levels in 40 years, which were a source of concern for consumers and played a role in the results of the recent presidential election.

The job market also showed signs of optimism. The perceived likelihood of the unemployment rate increasing over the next year fell to 34.5%, the lowest level since February 2022. Consumers estimated the probability of losing their jobs in the next 12 months at 13%, the most positive outlook since January. The likelihood of finding a new job in the event of job loss rose to 56%, marking the most promising figure in a year.

Although the unemployment rate in the U.S. remained steady at 4.1% in October, the pace of job creation has slowed compared to last year. Nevertheless, concerns about consumers defaulting on their debt payments have decreased due to falling interest rates and slowing price increases. The likelihood of missing minimum debt payments over the next year decreased to 13.9%, an improvement from the peak level observed in September.

Additionally, the survey indicated a better perception of credit access, which suggests a more positive financial outlook among U.S. consumers as the year progresses.