Unemployment Worries Reach Highest Level Since COVID

NEW YORK—A Federal Reserve Bank of New York survey released on April 14 shows that households expect inflation and job losses to rise, while income and stock market growth will decline in the short term. The decline in the stock market fell to the lowest level since the COVID pandemic.

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the March 2025 Survey of Consumer Expectations, which showed that households’ inflation expectations increased at the short-term horizon, remained unchanged at the medium-term horizon, and ticked down at the longer-term horizon. Unemployment, job loss, and earnings growth expectations deteriorated. Household income growth expectations declined. Households were also more pessimistic about their year-ahead financial situations and credit access. Stock price expectations declined and reached the lowest level since June 2022.

It should be noted that the survey was conducted and completed prior to President Trump’s “Liberation Day” on April 2, when he announced a slew of new tariffs and the 90-day freeze on some tariffs.

A few days earlier, in a speech in Puerto Rico, Federal Reserve Bank of New York President and CEO John C. Williams said economic uncertainty, including the evolving dynamics and impacts of tariffs, has caused him to lower economic expectations going forward and increase his prediction on the inflation rate in 2025.

The survey found the median inflation expectations increased by 0.5 percentage point to 3.6% at the one-year-ahead horizon, were unchanged at 3.0% at the three-year-ahead horizon, and decreased by 0.1 percentage point to 2.9% at the five-year-ahead horizon.

Median home price growth expectations decreased by 0.3 percentage point to 3.0% in March. This series has been moving in a narrow range between 3.0% and 3.3% since August 2023, the Federal Reserve Bank of New York stated.

The Labor Market

Median one-year-ahead earnings growth expectations fell by 0.2 percentage point to 2.8% in March, equaling its 12-month trailing average. The series has been moving within a narrow range between 2.7% and 3.0% since January 2024.

Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—jumped 4.6 percentage points to 44.0%, the highest reading since April 2020. The increase was broad-based across age, education, and income groups, the survey stated.

The mean perceived probability of losing one’s job in the next 12 months increased by 1.6 percentage points to 15.7%, the highest level since March 2024. The increase was largest for respondents with annual household incomes below $50,000. The mean probability of leaving one’s job voluntarily in the next 12 months increased by 0.4 percentage point to 18.0%, remaining far below the 12-month trailing average of 19.7%. The mean perceived probability of finding a job if one’s current job was lost decreased by 0.1 percentage point to 51.1%.

Household Finance

The median expected growth in household income decreased by 0.3 percentage point to 2.8% in March, falling below its 12-month trailing average of 3.0%. The decline was most pronounced for respondents with at most a high school degree and for those with annual household incomes under $50,000. Median household spending growth expectations declined by 0.1 percentage point to 4.9%.

Perceptions of credit access compared to a year ago showed a larger share of households reporting that it is harder to get credit. Expectations for future credit availability also deteriorated, with a larger share of respondents expecting it will be harder to obtain credit in the year ahead.

Perceptions about households’ current financial situations compared to a year ago deteriorated slightly, with a larger share of households reporting a worse financial situation compared to a year ago. Year-ahead expectations about households’ financial situations also deteriorated in March. The share of households expecting a worse financial situation in one year from now rose to 30.0%, the highest level since October 2023.

The mean perceived probability that U.S. stock prices will be higher 12 months from now dropped by 3.2 percentage points to 33.8%, the lowest level since June 2022.

‘Uncertain Times’

Federal Reserve Bank of New York’s Williams, in a speech on April 11 before the Puerto Rico Chamber of Commerce, addressed what he characterized as the “uncertain times” the United States and the world now face.

He said that the economy entered the year on a strong footing and the Federal Reserve’s mission to lower inflation to the target 2% rate was on track. However, recent events, including the imposition of tariffs by the Trump Administration and subsequent tariffs imposed by affected countries in response, have given businesses pause and prompted many businesses and consumers to adopt a “wait and see approach.”

“It’s a concept economists call the ‘option value of waiting,” he said. “At times of great uncertainty, consumers may put off making big decisions like buying a home or car, and businesses may delay investing until they have a better sense of what the future holds. And when households and businesses cut back on spending, economic growth slows.”

He noted that at its most recent meeting, the Federal Open Market Committee decided to leave the target range for the federal funds rate unchanged at 4.25 to 4.50% and reaffirmed its strong commitment to supporting maximum employment and returning inflation to its 2% objective. The FOMC also stated that its policy decisions will be based on a careful assessment of the incoming data, the evolving outlook, and the balance of risks. While some analysts are increasing their predictions on Fed rate cuts going forward, Williams stressed that the Federal Reserve must balance the state of the labor market with its mandate to reduce inflation.

“Given the combination of the slowdown in labor force growth due to reduced immigration and the combined effects of uncertainty and tariffs, I now expect real GDP growth will slow considerably from last year’s pace, likely to somewhat below 1%. With this downshift in the pace of growth, I expect the unemployment rate to rise from its current level of 4.2% to between 4.50% and 5% over the next year. I expect increased tariffs to boost inflation this year to somewhere between 3.50% and 4%,” Williams predicted.

He concluded his remarks by noting that a key question going forward is how higher inflation spills over into future years and how the global economy will respond to the changes in trade policies.

“Elevated uncertainty poses many questions about the future of the economy and the path of monetary policy. It is simply too early to know the answers,” Williams said. “But as we learn more about the effects of tariffs and other policies, we’ll continue to carefully assess the incoming data, the evolving outlook, and the balance of risks to our goals.”