US consumer medium-term inflation expectations drop

(Reuters) - U.S. consumers' medium-term inflation expectations eased substantially in July even as their near- and longer-term outlooks for price pressures held steady, although households are increasingly worried about staying current on their debt, a Federal Reserve Bank of New York report showed on Monday.

The median three-year inflation expectation dropped to 2.3% from 2.9% in June to register its lowest reading since the New York Fed launched the monthly Survey of Consumer Expectations in 2013. The one-year and five-year outlooks held steady at 3.0% and 2.8%, respectively.

Fed officials - who've been battling high inflation for more than two years - track a range of measures of inflation expectations because they worry that if they begin to drift substantially upward, consumers and businesses will alter their spending behaviors in ways that can make inflation harder to tame.

Recent measures of inflation have shown it returning toward the Fed's 2% target, and the central bank is now widely expected to cut interest rates next month. The Fed's policy rate - which was raised rapidly from near zero starting in March 2022 - has been on hold in a range of 5.25%-to-5.50% since July 2023.

Meanwhile, consumers - especially lower-income households - see a greater chance they will miss a debt payment in the year ahead.

The survey showed a 13.3% average probability of missing a minimum debt payment, up 1 point from June and the highest since April 2020 at the onset of the COVID-19 pandemic when unemployment briefly skyrocketed. The increase was most pronounced for those with an annual income below $50,000 and those without a high school degree, the survey said.

(Reporting By Dan Burns; Editing by Andrea Ricci)