The New York Federal Reserve’s Survey of Consumer Expectations for April found that US households expect higher inflation in the near term, while medium- and long-term expectations were unchanged. The survey was released on Thursday.
Inflation expectations for the next 12 months rose to 3.6% in April from 3.4% in March. Expectations held steady at 3.1% for three years and 3% for five years.
Near Term Inflation Expectations
Households expected petrol prices to be lower after March’s rise to 9.4%. The March increase was linked to an energy shock related to the Iran war.
Views on personal finances were mixed in April. Respondents reported uncertainty about their financial situation and expected credit to be harder to obtain than in March.
Expectations for hiring, earnings, and income were also mixed. Respondents expected unemployment to rise over the next year.
Looking back at the consumer survey from April of 2025, we can see the anxiety around short-term inflation, which was expected to hit 3.6%. This was largely driven by the energy shock from the Iran war, creating a very specific type of pricing pressure. That environment suggested hedging against persistent inflation and a potentially aggressive Federal Reserve.
Shift Toward Growth Concerns
Today, the situation has shifted as the Federal Reserve’s tighter policy appears to have taken hold. Recent data for April 2026 shows the Core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred gauge, has cooled to a 2.8% annual rate. This indicates that the primary concern from last year is now receding, demanding a change in strategy.
However, those same 2025 consumer fears about a weaker job market are now becoming more relevant. The unemployment rate, after hitting a low of 3.5% last year, has recently ticked up to 3.9% in the latest jobs report. This confirms the trend that households were anticipating, suggesting economic slowing is replacing inflation as the main risk.
This suggests that trading strategies should pivot from inflation hedges to positioning for potential economic slowing and interest rate cuts. We should consider options that benefit from declining yields, such as call options on treasury bond ETFs. Volatility plays using VIX options could also be prudent as the market digests this transition from inflation fears to growth concerns.
The derivatives market is reflecting this change, with Fed funds futures now pricing in a high probability of a rate cut later this year. Currently, the market implies over a 70% chance of a cut by the September 2026 meeting, a stark reversal from the hawkish stance of a year ago. This makes long-dated options that bet on lower rates increasingly attractive.
We should also watch credit markets, as the concerns about tightening credit access from last year’s survey are still valid in this environment. Recent data from the Senior Loan Officer Opinion Survey shows banks continue to tighten lending standards for commercial and industrial loans. This could create opportunities for trades that anticipate stress in corporate credit, such as buying protection through credit default swaps on vulnerable sectors.
