By Michael S. Derby

NEW YORK Americans’ expectations for inflation a year from now fell to the lowest level in two years, even as those same households said they expected more challenging financial times looming ahead, a New York Fed report on Monday said.

In its May Survey of Consumer Expectations report, the bank said that respondents project inflation a year from now to hit 4.1%, down from 4.4% in April. But it was a mixed bag on the price pressure front, as the expected level of inflation three years from now was seen at 3% in May, from April’s 2.9%, while inflation five years from now is projected to hit 2.7%, from the prior month’s 2.6%.

The survey found respondents expecting lower food, rent, medical and college costs over the next year, while the expected rise in home prices marked a fourth straight month of gains. The projected gain in gasoline prices held steady at 5.1% for May.

The New York Fed report arrives just as central bankers are set to meet in a policy meeting that’s expected to see them bypass a rate rise for the first time since kicking off their aggressive tightening campaign in March of last year.

The Fed has been pushing rates up at a swift pace to counter some of the worst inflation readings in decades. The cumulative impact of the increases coupled with cooling price pressures and anxiety over what higher rates are doing to the financial system have pushed many central bankers toward holding off on a rate hikes when the Fed meeting concludes Wednesday. But many economists expect another rate rise or two as the year moves forward.

Declining near-term expected inflation levels take some pressure off the Fed to boost rates, given that officials have long held that where the public expects inflation to go in the future strongly influences where it stands now.

The New York Fed also found that last month survey respondents were a touch more gloomy about prospects for borrowing money. “Respondents’ views about future credit availability deteriorated slightly,” the report said, adding “the share of respondents expecting tighter credit conditions a year from now increased, while the share expecting looser credit conditions declined.”

The survey found households forecasting modestly better earnings and a small rise in projected future spending. Meanwhile, survey respondents cut back on expectations the unemployment rate will be higher a year from now and the probability of losing one’s job over the next year was seen at the lowest level since April 2022.

(Reporting by Michael S. Derby; Editing by Andrea Ricci)