A recent survey conducted by the Federal Reserve Bank of New York reveals that U.S. households' concerns about their financial situation have reached the highest point since July 2022. In May, 13.3% of respondents reported their finances as "much worse" compared to the previous year, marking an increase of 2.7 percentage points from April. Overall, 43.7% viewed their situation as either much or somewhat worse than a year ago, the highest share observed since January 2023. Expectations for the next year were also pessimistic, with 36% anticipating worsening financial conditions and only 22.9% expecting improvement.

Despite these rising worries, inflation expectations remained relatively stable according to the New York Fed's monthly Survey of Consumer Expectations. The one-year inflation outlook dipped slightly by 0.1 percentage point to 3.5%, while longer-term expectations held at around 3%. Forecasts for gasoline prices fell slightly to 5%, though expectations for food and rent inflation increased to 5.8% and 7.4%, respectively. Household spending growth projections also declined to 5%, dropping 0.4 percentage point from the previous month.

The survey findings come amid heightened concerns about inflation driven by geopolitical tensions, notably the conflict involving Iran, which has pushed energy prices upward. Federal Reserve policymakers have expressed worry that continued conflict could entrench elevated inflation expectations among consumers and businesses, potentially prolonging inflationary pressures beyond typical short-term supply disruptions. However, the survey data suggest that consumer price worries have not significantly shifted despite these concerns.

Looking ahead, consumers are awaiting the May consumer price index release by the Bureau of Labor Statistics, with economists forecasting headline inflation rising to 4.2% and core inflation, which excludes food and energy, increasing to 2.9%. The Federal Open Market Committee will announce its next interest rate decision on June 17. Currently, markets largely rule out rate cuts this year and increasingly anticipate a quarter-point hike by the end of 2026 as the Fed continues efforts to manage inflation toward its 2% target.