The Federal Reserve's October survey has already flashed the inflation warning signal! The risk of raising interest rates is back in view.

According to the annual Household and Consumer Survey report released by the Federal Reserve, by 2025, the vast majority of Americans are worried about high prices, and an increasing number of people are also starting to feel anxious about the US non-farm employment market. The implications of this Federal Reserve annual survey conducted in October 2025 undoubtedly strengthen the latest market pricing expectations that "the Federal Reserve is likely to find it difficult to cut interest rates in the short term, and may even have to retain the risk of raising rates." According to the Federal Reserve's 2025 Household Economy and Decision Survey, against the backdrop of almost zero job growth last year, 42% of adults said finding or keeping a job was a slight or major concern, higher than 37% in 2024. In addition, surprisingly, nine out of ten American respondents expressed concerns about significant price increases. As shown in the chart above, inflation is the greatest financial concern for Americans - in 2025, the percentage of American adults worried about high prices remained unchanged. Source: Federal Reserve 2025 Annual Household Economy and Decision Survey. It is worth noting that this survey was conducted in October, several months before the escalation of the Iran war leading to a severe disruption in oil and natural gas supplies in the Middle East, which in turn triggered the fastest inflation expansion in the United States in many years. Federal Reserve policymakers are very likely to continue to maintain a hawkish stance in the short term, meaning that the threshold for rate cuts will be further raised; if future inflation data continues to exceed expectations, the risk of rate hikes will gradually enter the market pricing center from the tail-end scenario. The dissatisfaction among voters regarding high prices has helped propel former President Donald Trump back to the White House - Trump promised a series of measures, including increasing oil production, to significantly reduce prices, and is expected to play a major role in the upcoming midterm elections once again. The report highlights that there is almost no improvement in Americans' views on this issue in the first year of Trump's second term. Since the joint US-Israeli attack on Iran at the end of February, which led to a severe disruption in oil and natural gas supplies in the Middle East, energy prices have risen, pushing up inflation. The oil price shock has driven broad inflation indicators, including the US Consumer Price Index and Producer Price Index, higher and raised long-term inflation expectations based on market trading, as well as expectations of Fed rate hikes. The much stronger-than-expected US April Producer Price Index (PPI) data released on Wednesday further reinforced the Fed's policy expectations that had sharply reversed following the CPI report on Tuesday. According to the latest pricing from CME FedWatch, the market has effectively ruled out any possibility of rate cuts between now and the end of 2027. Instead, the probability of a 25-basis-point rate hike before the end of this year has risen to about 50% (compared to 37% on Tuesday), and market pricing indicates an accumulated rate hike of about 24 basis points by the June 2027 policy meeting. The Federal Reserve's survey shows that 73% of American adults last year said they were in "good" or "comfortable" financial condition, a proportion that was basically unchanged from the 2024 survey. However, this proportion has significantly decreased for individuals without a high school education, African Americans, and those under 30, as well as those with incomes below $25,000. The report highlights a significant differentiation among American consumer groups. The high-net-worth segment at the top income level continues to be supported by the strong rise in the US stock market and continues to consume on a large scale, while low-income consumers are facing increasing constraints. About a quarter of renters said they had fallen behind on rent at some point in the past year; about half of adults under the age of 30 said they lived with their parents. Among adults under 30, 47% said they had received significant financial assistance from sources outside of their families in the past year. The survey also asked about the use of artificial intelligence for the first time. A quarter of workers said they had used generative AI in their work in the past month; among users, 81% said generative AI significantly saved time and improved productivity. These users focused on AI applications are more likely to believe that it will improve their career development and business efficiency, rather than completely replace their work. Rising job anxiety collides with the fastest inflation expansion in many years, and the "rate cut/easing trade" suffers another blow from reality. The Federal Reserve's annual survey shows that about 90% of American adults are still worried about rising prices, 42% of adults are concerned about finding or keeping a job, higher than the 37% in 2024. This means that the Federal Reserve is facing a more difficult environment, not just the optimistic scenario of "weakening employment leading to loose monetary policy," but a more challenging combination of "rising job anxiety + still high inflation anxiety". In addition, 73% of adults in 2025 believe their financial situation is still good or comfortable, but the financial situation of low-income, young people, and African Americans has worsened, while job concerns have intensified. In other words, the survey reinforces the "policy dilemma": the Federal Reserve cannot easily turn dovish because concerns about prices have not receded; but it also cannot ignore cracks on the employment side, as pressures in the job market will increase the economic downside risks. Recent hard data further tilts the balance towards hawkishness. The April CPI rose 3.8% year-on-year, higher than the 3.3% in March and the highest level since May 2023; energy prices rose 17.9% year-on-year, with gasoline prices up 28.4%, indicating that the oil price shock sparked by the Iran war is reigniting inflationary pressures. Meanwhile, the April PPI surged 1.4% month-on-month and rose to 6.0% year-on-year, both significantly stronger than expected, indicating that upstream cost pressures are transmitting to corporate profit margins and end consumer prices. Therefore, when this survey is viewed together with recent CPI, PPI, and oil price shocks, it suggests that market pricing of the Fed's policy path should shift from "when will there be a rate cut" to "how long will high rates be maintained, and is there a risk of re-hiking rates". If inflation is just a one-off disturbance in the energy sector, the Fed may choose to stand pat and observe; but if the energy shock spreads to core services, wages, and even long-term inflation expectations, the Fed will find it difficult to maintain the narrative of "the next move is a rate cut", and interest rate futures and bond markets will naturally further reduce the probability of a rate cut, raise long-end yields, and boost the dollar risk premium. For typical risk assets with high valuations, such as technology stocks and cryptocurrencies, this survey is not strictly a major negative factor on its own, but another blow to the "rate cut trade". It tells the market: the inflation pain felt by American residents is still strong, low-income consumers are under pressure, but high-income groups and the wealth effect of the stock market are still supporting some consumption, and this structural differentiation will make the Federal Reserve rely more on data rather than pre-set paths.