According to the Federal Reserve's crucial annual Survey of Household Economics and Decisionmaking, a vast majority of Americans in 2025 were worried about high prices, while a growing number also expressed anxiety about the U.S. nonfarm job market. The implications of this Fed annual survey, conducted in October 2025, for the expected path of monetary policy undoubtedly lie in its reinforcement of the latest market pricing expectations that "the Fed will find it difficult to cut rates in the near term and may even have to retain the tail risk of rate hikes."
Based on the Fed's 2025 Survey of Household Economics and Decisionmaking, against the backdrop of nearly zero job growth last year, 42% of adults said finding or keeping a job was a minor or major concern, up from 37% in 2024. Furthermore, surprisingly, nine out of ten U.S. respondents indicated they were worried about prices rising significantly. As shown in the chart below, inflation was the top financial worry for Americans—the proportion of U.S. adults concerned about high prices remained unchanged in 2025.
Notably, this survey was conducted in October, months before the Iran war pushed up gasoline and liquefied natural gas prices and triggered the fastest pace of inflation expansion in the U.S. in years. Fed policymakers are very likely to maintain a hawkish wait-and-see stance in the near term, meaning the bar for rate cuts will be raised further; if future inflation data continues to exceed expectations, the risk of rate hikes could gradually move from a tail scenario into the center of market pricing.
Voter discontent over high prices helped propel former U.S. President Donald Trump back to the White House—Trump promised to significantly lower prices through measures like increasing oil production and is expected to again play a major bellwether role in the upcoming midterm elections. The report highlights that in the first year of Trump's second term, there were few signs of improvement in Americans' views on this issue.
Since the joint U.S.-Israel strike on Iran in late February, which severely disrupted Middle Eastern oil and gas supplies, rising energy prices have boosted inflation. The oil price shock has driven up broad inflation measures including the U.S. Consumer Price Index and Producer Price Index, and has increased market-based long-term inflation expectations as well as expectations for Fed rate hikes.
The much stronger-than-expected U.S. April PPI data released on Wednesday further reinforced Fed policy expectations that had already sharply reversed following Tuesday's CPI report. According to the latest pricing from the CME FedWatch Tool, the market has largely priced out any possibility of rate cuts from now through the end of 2027. Conversely, the market-implied probability of a 25-basis-point rate hike by year-end has risen to about 50%, up from approximately 37% on Tuesday. Money markets are pricing in about 24 basis points of cumulative rate hikes by the Fed's June 2027 policy meeting.
The Fed's survey report shows that 73% of U.S. adults last year said they were "doing okay" or "living comfortably" financially, a proportion essentially unchanged from the 2024 survey. However, this share declined notably for those without a high school diploma, Black Americans, adults under 30, and those with annual incomes below $25,000. The report underscores a significant divergence emerging among U.S. consumer tiers. High-net-worth groups at the top of the income ladder, generally supported by strong gains amid the U.S. stock market's super bull run, continue to consume on a large scale; while lower-income consumers are facing increasing constraints.
Nearly a quarter of renters said they had fallen behind on rent at some point in the past year; about half of adults under 30 reported living with their parents. Forty-seven percent of adults under 30 received significant financial help from someone outside their household in the past year.
The survey also inquired about artificial intelligence usage for the first time. One in four workers said they had used generative AI at work in the past month; among users, 81% said generative AI significantly saved time and increased output. These users focused on AI applications were more inclined to expect it to improve their career development and business efficiency rather than completely replace their jobs.
Rising employment anxiety colliding with the fastest inflation expansion in years delivers another blow to the "rate cut/easing trade." The Fed's annual survey shows about 90% of U.S. adults remain worried about price increases, and 42% are concerned about finding or keeping a job, up from 37% in 2024. This means the Fed is not facing a simple optimistic environment of "weakening employment allowing for accommodative monetary policy," but a more troublesome "stagflation-like" combination of rising employment anxiety and persistently high inflation anxiety.
Furthermore, while 73% of adults felt financially okay or comfortable in 2025, the financial situations of low-income, younger, and Black groups deteriorated, alongside rising employment concerns. In other words, the survey reinforces a "policy dilemma": the Fed cannot easily turn dovish because price anxiety has not receded; but it also cannot ignore cracks in the employment side, as pressure on the job market increases economic downturn risks.
Recent multiple hard data points have further tilted the scales toward the hawkish side. April CPI rose 3.8% year-over-year, up from 3.3% in March, reaching the highest level since May 2023. Energy prices surged 17.9% year-over-year, with gasoline prices up 28.4%, indicating the oil price shock from the Iran war is reigniting inflationary pressures. Simultaneously, April PPI jumped 1.4% month-over-month and rose 6.0% year-over-year, both significantly stronger than expected, suggesting upstream cost pressures are transmitting to corporate profit margins and final consumer prices.
Therefore, viewing this survey alongside recent CPI, PPI, and the oil price shock implies that market pricing for the Fed's policy path should shift from "when to cut rates" to "how long high rates will be maintained, and whether there is a risk of resuming rate hikes." If inflation is merely a one-off disturbance from energy components, the Fed might choose to stand pat and observe; but if the energy shock spreads to core services, wages, or even long-term inflation expectations, it becomes difficult for the Fed to maintain the narrative that "the next move is a cut." Interest rate futures and bond markets would naturally further reduce rate cut probabilities, raise long-end yields, and increase dollar risk premiums.
For high-valuation tech stocks, cryptocurrencies, and other typical risk assets, this survey is not a strictly standalone major negative factor, but another weakening of the "rate cut trade." It tells the market: inflation pain remains strong among U.S. households, low-income consumers are under pressure, but high-income groups and stock market wealth effects still support some consumption. This structural divergence will make the Fed more reliant on data rather than a preset path.
Comments