American households expect prices to rise 3.6 percent over the next 12 months, down a tenth of a point from June, according to the July Survey of Consumer Expectations that the Federal Reserve Bank of New York released on August 7. The survey was fielded from July 1 through July 31 among a rotating panel of roughly 1,300 household heads, and it is the last broad read on public inflation psychology before the Bureau of Labor Statistics publishes the July Consumer Price Index on Wednesday, August 12, at 8:30 a.m. Eastern time. The three-year and five-year expectations both held still, at 3.3 percent and 3.0 percent, which is the pair of numbers the Federal Open Market Committee watches hardest. Chair Kevin Warsh and his colleagues left the federal funds target at 3.50 to 3.75 percent on July 29, leaving the prime rate pinned at 6.75 percent. Nothing in the July survey argues for moving it before the September 15 to 16 meeting, but the gap between what consumers expect and what bond markets price has not closed. Our inflation tracker follows both readings.
- One-year inflation expectations fell 0.1 point to 3.6 percent in the July New York Fed survey.
- Three-year and five-year expectations were unchanged at 3.3 percent and 3.0 percent.
- Expected rent inflation dropped 2.4 points to 5.9 percent, the largest single move in the release.
- The odds households assign to higher unemployment rose 1.1 points to 42.8 percent.
- The prime rate holds at 6.75 percent. July CPI lands August 12 and the Fed decides September 16.
What the July Survey Found
The headline move was small and in the direction the Fed wants. Median year-ahead inflation expectations slipped from 3.7 percent in June to 3.6 percent in July. The New York Fed also reported that disagreement among respondents narrowed slightly at every horizon, and that inflation uncertainty fell at the one-year and five-year marks. Underneath the median, the component detail was mixed. Expected rent inflation dropped 2.4 percentage points to 5.9 percent, the largest single shift in the release. Expected medical care costs fell half a point to 8.9 percent. Expected food price growth did not move at all, holding at 5.0 percent. Gasoline ran the other way, rebounding 1.4 points to 2.9 percent after June’s sharp decline.
Household finance answers improved on balance. A smaller net share of respondents said their situation was worse than a year ago, and a smaller net share expected it to be worse a year from now. Expected income growth held at 3.0 percent and expected spending growth eased a tenth to 4.9 percent. Two readings cut against the calm. Households put the probability of missing a minimum debt payment in the next three months at 12.0 percent, up 1.2 points, with the increase concentrated among those earning under $50,000. And the share saying credit is harder to get than a year ago grew, even as expectations for future credit availability improved.
Why the Long Horizons Matter Most
One-year expectations track the gas pump and the grocery aisle, so they swing with whatever consumers bought last week. The three-year and five-year readings are the ones policymakers treat as a report card on their own credibility. Both were flat in July, at 3.3 percent and 3.0 percent. Flat is not the same as fixed at target. The Fed’s goal is 2 percent, and consumers have now spent more than a year telling the New York Fed they expect roughly a full point above that even five years out.
Bond investors disagree, and the size of the disagreement is the story. The Fed’s H.15 release for August 10 puts the 10-year Treasury constant maturity at 4.65 percent and the 10-year inflation-indexed yield at 2.40 percent for August 7, a breakeven inflation rate of 2.25 percent. The five-year breakeven works out to 2.22 percent. Markets are pricing inflation close to target over the same window in which households expect 3.0 percent. That spread of roughly 80 basis points is the tension the Committee has to resolve, and it explains why the July 29 statement kept describing inflation as elevated. Our Treasury yield curve page shows where the rest of the curve sits.
Wednesday’s CPI Is the Harder Test
Expectations surveys tell the Fed what people believe. The Consumer Price Index tells it what actually happened, and the July report arrives Wednesday morning. June set a low bar that will be hard to repeat. The BLS reported that the all items index fell 0.4 percent in June on a seasonally adjusted basis, the largest one-month decline since April 2020, driven by a 9.7 percent drop in gasoline. The 12-month rate came down to 3.5 percent from 4.2 percent in May. Core inflation, which strips out food and energy, was flat for the month and ran 2.6 percent over the year.
June’s decline came almost entirely from energy, and the survey suggests households already sense that the discount is fading. The 1.4 point jump in expected gas price growth is a direct read on that. If July energy prices simply stop falling, the headline rate stops falling with them, and the year-over-year figure could stall near 3.4 to 3.5 percent instead of continuing down. The reading that matters more for policy is core. A repeat of June’s flat core print would put the annual core rate within striking distance of the 2 percent goal and hand the doves a real argument for September. A firm core number would revive the hike talk that pushed the odds near 40 percent on the eve of the July meeting. Our Fed rate forecast page tracks how those odds move.
What This Means for Your Money
Nothing in a survey changes your rate this week. The prime rate sits at 6.75 percent, three points above the top of the federal funds target, and the H.15 series shows it unchanged every business day through August 7. Credit card APRs, home equity lines and most variable business loans reset off that number, so they stay where they are until the Committee moves. The next scheduled decision is September 15 to 16, with the meeting minutes from July due around August 19. The Fed meeting schedule lists the remaining 2026 dates.
Savers get the clearer signal. Households put the odds that savings account rates will be higher in a year at 28.2 percent, up 1.6 points, which means most people expect deposit yields to slip or hold rather than climb. If that view is right, the best rates on offer now are worth locking in rather than waiting out. Compare current high yield savings accounts against a fixed term certificate before you decide. Borrowers looking at property face a different anchor: 30-year mortgage pricing follows the 10-year Treasury, at 4.65 percent on August 7, not the prime rate, which is why current mortgage rates can move on a CPI print even when the Fed does nothing at all.
Use the 12 percent number as a personal checklist item, not a headline. That is the average probability households now assign to missing a minimum debt payment within three months, and it rose most among people earning under $50,000. If you carry a revolving balance at an APR tied to the 6.75 percent prime rate, the cost of that balance will not fall on its own before September 16. Moving it to a fixed rate product now converts a variable exposure into a known payment, and it removes the risk that a firm CPI print on Wednesday pushes your rate higher later this year.
Frequently Asked Questions
What inflation rate do consumers expect over the next year?
American households expect prices to rise 3.6 percent over the next 12 months, according to the July 2026 Survey of Consumer Expectations released by the Federal Reserve Bank of New York on August 7, 2026. That is down 0.1 percentage point from 3.7 percent in June. Expectations three years out are 3.3 percent and five years out are 3.0 percent.
Will grocery prices go up in 2026?
Households in the July survey expect food prices to rise 5.0 percent over the next 12 months, a figure that did not move from June. That is well above the 3.6 percent they expect for prices overall, and it is the reading that has been most stubborn across the past year. The BLS data supports the gap: food prices rose 0.2 percent in June and 3.0 percent over the 12 months ending in June, while the all items index rose 3.5 percent. Groceries are expected to keep climbing, just at a slower pace than in 2022.
Do consumer inflation expectations move the prime rate?
Not directly. The prime rate is set by large commercial banks at three percentage points above the top of the federal funds target range, so it changes only when the Federal Open Market Committee changes that range. Expectations data feeds into the Committee’s deliberations because policymakers treat well anchored long-run expectations as evidence that current policy is working. A sustained rise in the three-year and five-year readings would strengthen the case for holding rates high or raising them, which would eventually reach prime. A single monthly survey does not.
When does the Fed decide on interest rates again?
The Federal Open Market Committee next meets September 15 and 16, 2026, and that meeting includes a Summary of Economic Projections, so it carries an updated dot plot. Two meetings follow in 2026: October 27 and 28, and December 8 and 9. The minutes of the July 28 and 29 meeting, which held the target range at 3.50 to 3.75 percent, are due roughly three weeks after that decision, placing them around August 19. Between now and September the Committee will see two CPI reports and one jobs report.
What does this survey say about my credit card and savings rates?
Your credit card APR tracks the 6.75 percent prime rate, and the survey does not change it. What the survey does tell you is how your neighbors see the next year. Only 28.2 percent think savings account rates will be higher in 12 months, so the consensus expects deposit yields to flatten or fall. It also shows 12.0 percent average odds of missing a minimum debt payment within three months, up 1.2 points. Read together, those two numbers argue for locking in deposit yields and reducing variable rate balances now.
What should I watch in Wednesday’s CPI report?
Watch the core index first. Core CPI, which excludes food and energy, was unchanged in June and ran 2.6 percent over 12 months, the cleanest signal of underlying price pressure. Then check gasoline, because June’s 9.7 percent drop is what produced the 0.4 percent decline in the headline index, and the survey shows households expect that discount to fade. Shelter is the third line to check, at 3.3 percent over 12 months in June. If all three hold near June’s pace, the September hold looks safe.
Watching the Data Before September 16
Three releases stand between this survey and the next rate decision: July CPI on Wednesday, the July FOMC minutes around August 19, and the August jobs report in early September. Expectations that hold near 3.6 percent while realized core inflation drifts toward 2.6 percent would give the Committee room to keep the prime rate at 6.75 percent through the fall. A hot July core print would flip that. Track the numbers on our inflation tracker and the national debt counter, which stood at $39.885 trillion on August 7.
References
- Federal Reserve Bank of New York, Short-Term Inflation Expectations Tick Down; Household Finance Expectations Improve, press release, August 7, 2026.
- Federal Reserve Bank of New York, Center for Microeconomic Data, Survey of Consumer Expectations, July 2026 survey, fielded July 1 to July 31, 2026.
- Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates (Daily), release date August 10, 2026, data through August 7, 2026.
- U.S. Bureau of Labor Statistics, Consumer Price Index Summary, June 2026, USDL-26-1191, released July 14, 2026.
- Board of Governors of the Federal Reserve System, FOMC Meeting Calendars and Information, 2026 meeting dates.
- U.S. Department of the Treasury, Fiscal Data, Debt to the Penny, record date August 7, 2026.
- U.S. Department of the Treasury, Fiscal Data, Average Interest Rates on U.S. Treasury Securities, record date July 31, 2026.
