Today’s survey also suggests there is real concern about job security, with a net 54% of respondents expecting unemployment to rise over the next 12 months. That reading is on a par with the readings experienced during the Global Financial Crisis and the early 1990s recession.
In better news for the Federal Reserve, inflation expectations receded, with the 1Y ahead reading dropping to 4.6% from 4.8% (consensus 4.9%), while 5-10Y ahead dropped to 3.4% from 3.9%. Today’s moves in oil prices on the back of positive news on the prospect of a deal to reopen the Strait of Hormuz, suggest that retail gasoline prices could drop back below $4/gallon next week, having recently been as high as $4.60/gallon. This should mean further declines in both market and consumer inflation expectations, which would remove a key argument that hawks use to justify calls for higher US interest rates. We expect the Federal Reserve to hold rates steady next week and not hike at all in this cycle, as we outlined in our FOMC preview.