Consumers grew more optimistic about jobs and finances in May, New York Fed says

• Consumers grew more optimistic toward earnings growth and labor-market health in May, the Federal Reserve Bank of New York said in a Monday report.
• Expectations for personal income and spending growth improved, while the probability of Americans falling behind on minimum debt payments declined.
• Consumer expectations for one-year inflation growth ticked higher to 3% last month from 2.6%, suggesting price growth could arrive sooner than the central bank anticipates.
• The Fed prioritized economic relief over meeting its inflation goal in recent months. An unexpected jump in inflation could force additional tightening measures.
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Americans' view of the labor market and the greater economy turned more positive in May, according to a Monday report from the Federal Reserve Bank of New York.

Consumer expectations for personal income and spending growth trended higher last month compared to April. The probability of Americans missing a minimum debt payment fell, suggesting credit-default risks are easing as lockdowns are lifted and economics come back online.

"Consumers grew comparatively more optimistic about labor market outcomes with earnings growth, job finding, and job loss expectations all slightly improving, but remaining far off pre-COVID19 levels," the central bank said in its report.

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While Americans are expecting the US to slowly recover from the coronavirus recession, they're also preparing for a steady rise in inflation. Median inflation expectations for the next year gained 0.4 percentage points to 3% in May, according to the Fed. Inflation uncertainty reached its highest level in the data's history, and inflation expectations for three years from now held steady at 2.6%.

Such inflation projections could throw a wrench in the Fed's plans for policy easing. The central bank prioritized economic relief over its 2% inflation goal in recent months and forecasted weak inflation for the foreseeable future. An unexpected jump in inflation would likely stifle spending and slow the nation's recovery.

The Federal Open Market Committee meets Tuesday and Wednesday to mull additional easing measures. Experts expect the central bank to reiterate its pledge to keep interest rates near zero. Yet additional actions could be taken if consumers' inflation expectations spark concern among policymakers.

The Monday survey update followed Friday's jobs report showing similarly positive trends in the labor market. The unemployment rate sank to 13.3% in May from 14.7%, stunning economists who projected an increase to roughly 20%. Businesses added 2.5 million jobs last month, beating estimates for 7.5 million lost payrolls.

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