NY Fed: the probability of personal debt default is at its highest level since April 2020 🔔📌

The Federal Reserve Bank of New York’s Center for Microeconomic Data released its February 2025 Survey of Consumer Expectations. It shows that short-term inflation expectations inched higher, while medium- and longer-term expectations remained stable at 3%. The survey also points to rising pessimism about future finances, tougher credit access, and a jump in expected spending.

** The SCE is a monthly, internet-based survey of approximately 1,300 household heads. This rotating panel structure allows the New York Fed to track changes in individual expectations and behavior over time.

Highlights:

• Inflation Expectations: Consumers see inflation at 3.1% in the next year, up from 3.0%. Three- and five-year views remain at 3%, near where the Fed likes to see them.
   
• Personal Finances and Spending: Despite current finances staying about the same, more people expect worse finances in a year (up to 27.4%), and anticipated household spending growth rose to 5%.
• Stock prices: Probability of higher U.S. stock prices in 12 months dropped 3.3 points to 37.0% (lowest since December 2023).
   
• Prices and Uncertainty: Households worry about faster price increases for food, rent, gasoline, and more. Inflation uncertainty has gone up, even though some Fed officials say long-term inflation fears remain contained.
   
• Job Market Worries: The probability of higher unemployment in the next year is at its highest since September 2023, and people expect it will be harder to quit or find new work. Mean probability of higher unemployment in a year jumped 5.4 points to 39.4% (highest since September 2023).
   
• Credit and Debt: Access to credit is tougher, and the likelihood of missing a debt payment is rising, especially among younger adults and those without a college degree. Probability of missing a minimum payment in next three months rose by 1.3 points to 14.6% (highest since April 2020).
   
• Policy Context: Tariffs under the Trump administration add to fears of higher inflation and a slowing economy, leaving Fed officials balancing potential rate cuts with the risk of rising inflation.