Key Takeaways

The latest New York Fed Survey of Consumer Expectations reveals a complex and concerning economic picture heading into 2024. Consumer inflation expectations for the year ahead rose to 3.4%, while anxiety over job security hit a record high. Despite this, longer-term inflation expectations remain anchored, and wage growth expectations are softening—a potential silver lining for the Federal Reserve's policy path.

Decoding the November Survey: A Tale of Two Timeframes

The New York Federal Reserve's monthly Survey of Consumer Expectations (SCE) is a critical pulse check on the American psyche, offering invaluable forward-looking data that often moves markets. The November 2023 report paints a portrait of a consumer under increasing near-term pressure but holding onto longer-term stability in certain key beliefs.

The headline grabber is the uptick in one-year-ahead inflation expectations, which climbed to 3.4% from 3.2% the prior month. This marks a reversal from the steady declines seen through much of 2023 and signals that consumers are feeling the persistent bite of prices for essentials like food, energy, and shelter. It's a psychological hurdle for the Fed, which seeks to convince the public that its 2% target is credible.

However, the stability in the three-year and five-year inflation expectations—both unchanged at 3.0%—provides a crucial counter-narrative. It suggests that while consumers expect near-term bumps, their faith in the Fed's long-term ability to control inflation is not completely broken. This anchoring is a vital buffer against a wage-price spiral.

The Labor Market: Cracks in the Foundation of Confidence

Perhaps the most striking and economically significant data from the report concerns the labor market, long the bastion of post-pandemic economic strength.

  • Job-Finding Expectations Hit Record Low: The mean perceived probability of finding a new job if one's current job was lost fell to its lowest level since the survey's inception. This declining confidence directly impacts consumer spending behavior and financial risk-taking.
  • Fear of Job Loss Rises: The mean probability of losing one's job in the next 12 months increased by 1.4 percentage points to 15.2%, now sitting above its 12-month trailing average. This rise was broad-based across age and education groups.
  • The "Quit Rate" Expectation Declines: The expected probability of voluntarily leaving a job dipped slightly to 17.5%. This is a key indicator of worker confidence and bargaining power. The convergence of rising fear of job loss and a lower willingness to quit suggests a cooling labor market where workers feel less secure.

As noted by analysts, this dynamic is "the most worrisome" for the consumer outlook but presents a paradoxical signal for monetary policy: rising job angst typically correlates with lower wage demand, which could help ease inflationary pressures from the labor side.

Household Finances, Credit, and Market Views

The survey details a palpable deterioration in household financial sentiment. A larger share of respondents reported being worse off financially compared to a year ago, and expectations for year-ahead financial improvement also slipped. This is the direct real-world consequence of persistent inflation and growing employment anxiety.

Furthermore, perceptions of credit access deteriorated. Tighter credit conditions, a direct result of the Fed's rate-hiking campaign, are now being felt acutely by households, potentially curtailing large purchases and investment.

Amidst this gloom, one area of relative optimism persists: the stock market. The mean perceived probability that U.S. stock prices will be higher in 12 months edged up slightly to 38.0%. While not euphoric, it indicates that a segment of consumers still sees opportunity despite the economic headwinds.

What This Means for Traders

For traders and investors, this survey is a rich dataset that informs positioning across asset classes.

  • Fixed Income & Fed Policy: The rise in short-term inflation expectations argues against premature Fed pivot bets and supports a "higher for longer" narrative for the front end of the yield curve. However, the anchored long-term expectations, coupled with the clear cooling in labor market confidence and subdued wage growth expectations (median earnings growth expectations held at 2.6%), provide the Fed with cover to eventually cut rates to avoid overtightening. Traders should watch for a steepening of the yield curve if recession fears, highlighted by the job data, begin to outweigh inflation fears.
  • FX Markets: The mixed data creates a tug-of-war for the U.S. dollar. Near-term inflation resilience is USD-positive, but the deteriorating labor and consumer confidence story is USD-negative, as it implies future economic weakness and eventual rate cuts. Range-bound trading may persist until one narrative dominates.
  • Equities: Sector rotation is key. Rising job insecurity and weaker financial perceptions are headwinds for consumer discretionary stocks. Conversely, consumer staples may see relative safety flows. The stable outlook for home price growth (unchanged at 3%) offers some support to housing-related sectors, though tight credit remains a formidable challenge.
  • Volatility and Hedging: The conflicting signals—hot near-term inflation and cold labor fears—increase the risk of erratic data prints and volatile market reactions. This environment supports strategic hedging and favors traders who can navigate shifting macro narratives.

Conclusion: Navigating the Crosscurrents of 2024

The November SCE reveals an American consumer at an inflection point. The robust, inflation-insensitive spending of the past two years is facing its sternest test from eroding job security and tight credit. The Fed's challenge in 2024 is now delicately balanced: managing still-elevated near-term inflation expectations without exacerbating the clear cracks forming in labor market sentiment.

For markets, the survey underscores that the path to a soft landing is narrowing. The most likely scenario emerging is one of a cooling economy that gradually brings inflation down, allowing the Fed to shift from restraint to accommodation by the second half of 2024. Traders must now weigh the timing and depth of that pivot against the very real possibility that the loss of consumer confidence accelerates the economic slowdown. The key to performance will be agility—navigating the persistent inflation narrative while preparing for the labor-led downturn narrative that the New York Fed survey suggests is gathering steam.