For the past few years, a treasure trove of economic surveys has shared the same theme: Conditions have yet to return to pre-pandemic levels. However, over the last few months, various business reports have suggested that forecasts are gradually returning to those 2018-2019 levels. Despite President Donald Trump’s tariffs, companies’ inflation expectations are stabilizing, which could also be a victory for worried consumers.
Business Inflation Expectations
Hang it in the Louvre, as the kids say.
Updates to two new survey series suggest that US businesses are not anticipating significant fallout from the president’s trade agenda. In fact, their inflation outlook is roughly aligned with the central bank’s 2% target. Reasons may vary, whether investments in artificial intelligence (AI) or sacrifices in profit margins, but the data indicate that levies are not causing businesses to lose sleep at night.
First, according to the Atlanta Federal Reserve's Business Inflation Expectations survey, the one-year forecast for average unit cost change is 2%. The reading is down from the 2.8% registered when Trump unveiled the contours of his "Liberation Day" tariff plans. This is also firmly below the series peak of 3.8% in the spring of 2022.
What's more, the regional central bank asked respondents about their current profit margins and sales levels compared to what they perceive as "normal times." Their response? As the classic Fred Astaire song goes, things are looking up. While they remain below pre-pandemic levels, marketplace conditions are steadily returning to 2019.
The Atlanta Fed’s findings are not an outlier, either.
The Cleveland Fed's first-quarter Survey of Firms’ Inflation Expectations revealed that expected Consumer Price Index (CPI) inflation over the next 12 months is 3.1%, down from 3.9% in the second quarter of 2025. These numbers are comparable to those recorded throughout 2018.
In December, the Philadelphia Fed released results from its fourth-quarter Price and Inflation Expectations Survey. The numbers indicate that firms project their own prices will rise 2.6% this year, down from the previous estimate of 3.3%. The mean forecast for US inflation was 3.6%, a drop from 4.7% in the last quarter. Once again, this aligns with 2018 and 2019.
Findings from these business surveys are not too different from consumers' inflation expectations. The New York Fed's widely watched monthly Survey of Consumer Expectations, for example, shows the one- and five-year outlooks are hovering around 3%.
Funnily enough, the US annual inflation rate never cracked 3% in 2018. Additionally, in 2019, the 12-month CPI gauge topped 2% only twice. Reality has typically undershot public perceptions of annual price changes. Put simply, the trend is your friend.
Anchors Aweigh
In modern Federal Reserve history, officials have shifted the goalposts when deciding how to craft monetary policy. Under Paul Volcker, for example, the central bank analyzed capacity utilization rates to forecast future inflation. Under Janet Yellen, it was average hourly wages. Under Jerome Powell, it has been all over the map, transitioning from supercore inflation to core PCE.
It has often been said that one objective for the Fed is to ensure inflation expectations are well anchored. In other words, monetary policymakers want the public to think inflation will remain around 2% over the long run. Otherwise, if businesses and consumers anticipate inflation running at 5%, 7%, or 9%, then the cost-of-living increases will mirror those expectations. This is one factor behind the Fed’s policymaking apparatus.
Now that businesses and consumers predict stable inflation going forward, will the Federal Reserve toss the public a bone and stop playing a guessing game with interest rates?
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