Inflation’s Going To Improve, Many of Us Expect - Fed survey shows inflation expectations fell ahead of this week’s report on August prices.

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What's Happening Today

Ahead of the Labor Department's inflation report for August tomorrow, many of us are expecting prices to grow at a slower pace a year from now. The Federal Reserve released the results of its latest survey of consumers on what they expect inflation to be in the future. In a sign of rising optimism, the research showed that those surveyed believe inflation will slow significantly, both in the medium and long term.

Median one-year-ahead expectations for the annual rate of inflation fell to 5.7% in August from 6.2% in July—still relatively high but far lower than the actual inflation rates we've seen all summer, with prices up 8.5% in July from the year before. Three-year-ahead projections fell from 3.2% to 2.8%, not far from the Fed's target rate of 2%.

Meanwhile, more respondents believe their incomes will rise, as median expectations for rising income hit a record high of 3.5% in August. Fewer households reported they were in a worse financial situation compared to a year ago, and fewer households expect to be worse off a year from now.

If you're hoping to buy a home, you might also see prices continue to come down—or at least that's what most people expect, with median home price growth expectations declining sharply to 2.1%, in the lowest reading since July 2020. That's below pre-pandemic levels, reflecting broad declines across the country. In perspective, home price expectations have now fallen by nearly two-thirds since the April 2022 reading of 6.0%.

Tomorrow, the Bureau of Labor Statistics will release its update to the Consumer Price Index (CPI) for August, with economists forecasting the annual rate of inflation to come down to 8% year-over-year. While still relatively high and near its multi-decade highs early this summer, it would be lower than July's 8.5%.

- Kara

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Term of the Day

High-Yield Savings Account

When you realize that you have a few extra dollars in your checking account, you might start to wonder how you can make the most of your money. Inflation is real and you'll fall behind if your money isn't growing. That's where a savings account comes in. It can offer you interest on your account balance.

A high-yield savings account is one that pays you more interest than a traditional savings account. These traditional accounts offered an average annual percentage yield (APY) of about 0.13%, while the APYs of the best high-yield savings accounts were in the range of 2.15% to 2.61%, according to data collected by The Balance as of Friday.

However, they likely won't give you the same return on your money as a 401(k) or IRA if you're saving for retirement. There could also be obstacles withdrawing your money: Some banks limit you to six withdrawals a month, even though the federal rule that first imposed that limit has been suspended. There might be limits or waiting periods to make transfers to and from your other accounts as well.