A monthly survey by the New York Federal Reserve reveals that consumer expectations for inflation over the next year have increased, with signs indicating that low- and middle-income households are bearing the brunt of rising prices.

Consumer expectations for inflation over the next 12 months jumped from 3.2% to 3.4% in September. This increase was most pronounced among households with annual incomes below $50,000 and consumers with high school education or less. Expectations for annualized inflation over the next five years also rose slightly from 2.9% to 3%, while expectations for three-year annualized inflation remained unchanged at 3%.

Federal Reserve officials are closely monitoring consumer inflation expectations as they attempt to assess whether tariffs will cause a one-time price increase or trigger more persistent inflationary pressures. Following last month's decision to cut interest rates by 25 basis points, policymakers supported by a narrow majority at least two additional 25 basis point rate cuts this year.

Nevertheless, some officials have expressed caution about further rate cuts, as core inflation measures remain approximately one percentage point above the 2% target. Beyond the New York Fed's survey, several other surveys indicate that consumer confidence in the economy is deteriorating due to persistently high inflation and businesses slowing their hiring.

The survey shows that consumer expectations for the labor market continue to worsen. Expectations for the likelihood of unemployment over the next 12 months have risen, as have overall unemployment rate expectations. On the other hand, consumer expectations for finding employment over the next three months rebounded in September, following a record monthly decline in August.

Household views of their own financial situations show divergence. More consumers report that their circumstances have improved compared to a year ago, but the proportion of respondents who expect their financial situation to deteriorate over the next year has also increased.