Consumer “Inflation Expectations” Throw the Fed another Curveball

Consumer inflation expectations have become unanchored from the Federal Reserve's 2% target, with one-year inflation expectations rising to 3.67% in July 2026—the highest since September 2023—and three-year expectations reaching 3.34%, the highest in four years, according to the New York Fed's Survey of Consumer Expectations released in the article. Core PCE inflation has accelerated to 4.1% annualized on a six-month basis as of May 2026, while the article notes that unanchored inflation expectations could become a self-reinforcing psychological phenomenon if consumers and businesses adjust wage and pricing behavior accordingly.