U.S. consumer expectations for wage growth rose in December to the highest level in three years, according to a Federal Reserve Bank of New York survey.
The pickup accompanied an increase in expected inflation to the highest level since April, and the share of respondents who reported personal finances being in better shape than a year earlier, at 37%, was the highest in the survey’s history, which dates to mid-2013.
A surprise moderation in consumer price inflation in 2017 has raised concern among Fed policy makers that low expected inflation may be preventing actual inflation from rising to the central bank’s 2% target, which it has undershot for most of the last five years.
The New York Fed survey results mirror a recent rise in breakeven inflation rates derived from Treasury Inflation Protected Securities, and could allay some of those worries if the momentum is sustained.
Despite the concerns about low inflation, forward interest rates suggest investor expectations for the amount of Fed policy tightening over the next year is at the highest level in 10 months, in part thanks to a tighter labor market and rising consumer confidence. Fed officials penciled in three interest-rate increases this year in quarterly forecasts updated last month.