Board of Governors of the Federal Reserve System

Figure 1. Wage/Income Growth and Inflation Expectations

Panel A: SCE This is a line chart showing monthly data from 2013 to 2025, with the y-axis measuring expected percent change over the next 12 months, ranging from 2 to 13 percent. The chart displays two variables: "Expected Inflation" (purple line) and "Expected Wage Growth" (green line). Expected inflation fluctuated between 5-7% during 2013-2019, then dropped briefly in 2020 before rising sharply to peak at around 12% in 2022. Since then, expected inflation has generally declined, reaching about 7% by early 2025. Expected wage growth has remained more stable, generally fluctuating between 3-5% throughout the period, with a brief dip to about 2.5% in 2020 before recovering to around 4-5% through early 2025. A shaded bar marks February 2020 to April 2020, a period of business recession as defined by the National Bureau of Economic Research (NBER).

Panel B: UMSC This is a line chart showing monthly data (3-month moving average) from 1980 to 2025, with the y-axis measuring expected percent change over the next 12 months, ranging from 0 to 11 percent. The chart displays two variables: "Expected Income Growth" (green line) and "Expected Inflation" (purple line). Expected income growth generally fluctuated between 4-6% from 1980 to 2008, then dropped sharply to near-zero in 2009 before gradually recovering over the next decade. It shows another sharp decline in 2020, followed by recovery. Expected inflation shows more variation throughout the period, with notable peaks around 1984, 2008, and 2022 (reaching 6-8%), and a recent spike to about 7% in 2024. Shaded bars indicate the following periods of business recession as defined by the National Bureau of Economic Research (NBER) : July 1981–November 1982, July 1990–March 1991, March 2001–November 2001, December 2007–June 2009, and February 2020–April 2020.

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Figure 2. Mean Expectations in Survey of Consumer Expectations

Expected % Change, Next 12 Months (Probability-Weighted Mean Forecast) This is a line chart showing monthly data from 2013 to 2025, with the y-axis measuring expected percent change ranging from 2 to 9 percent. The chart displays two variables: "Expected Inflation" (purple line) and "Expected Wage Growth" (green line). A vertical gray bar marks a period in 2020. Expected inflation started around 4-4.5% in 2013-2014, then declined to about 3-3.5% through 2019. Following a brief dip in 2020, it rose sharply to peak at nearly 8% in 2022 before declining to around 4% by late 2023. In 2024-2025, it shows an upward trend, reaching about 4.8% by early 2025. Expected wage growth remained more stable throughout the period, generally fluctuating between 2.5-3.5% before 2020 and 3-3.8% after 2020, with a brief dip to about 2.2% in 2020. A shaded bar marks February 2020 to April 2020, a period of business recession as defined by the National Bureau of Economic Research (NBER).

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Figure 3. Expected/Realized Wage Growth and Inflation

Panel A: Price Inflation This is a line chart showing monthly data from 2013 to 2025, with the y-axis measuring year-over-year percent change ranging from -1 to 13 percent. The chart displays two variables: "Expected Future Price Inflation" (solid purple line) and "Realized Past Price Inflation" (dashed purple line). A vertical gray bar marks a period in 2020. Expected future price inflation fluctuated between 5-7% from 2013-2019, dipped briefly in 2020, then rose sharply to peak at around 12% in 2022 before declining to about 7% by early 2025. Realized past price inflation remained much lower, mostly between 1-3% before 2020, then rose to peak at about 9% in 2022 before declining to approximately 3% by 2025, showing a persistent gap between expectations and realized inflation. A shaded bar marks February 2020 to April 2020, a period of business recession as defined by the National Bureau of Economic Research (NBER).

Panel B: Wage Growth This is a line chart showing monthly data from 2013 to 2025, with the y-axis measuring percent ranging from 1 to 11 percent. The chart displays two variables: "Expected Future Wage Growth" (solid green line) and "Realized Past Wage Growth" (dashed green line). A vertical gray bar marks a period in 2020. Expected future wage growth generally remained between 3-5% throughout the period, with a brief dip to about 2.5% in 2020 before recovering to around 4-5% by 2025. Realized past wage growth showed more volatility, generally fluctuating between 3-7% before 2020, then experiencing a sharp increase after 2020, peaking at about 10% in 2022 before moderating to around 6-7% by 2025. Unlike price inflation, realized wage growth consistently exceeded expectations throughout most of the period. A shaded bar marks February 2020 to April 2020, a period of business recession as defined by the National Bureau of Economic Research (NBER).

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Figure 4. Percentiles of the Expected and Realized Wage Growth Distributions

This is a line chart showing year-over-year percent change in wage growth from 2013 to 2025, with the y-axis ranging from -5 to 25 percent. The chart displays multiple variables across different percentiles and types. A vertical gray bar marks a period in 2020. The chart includes percentile lines (25th percentile in red, median in blue, and 75th percentile in gray) and variables (realized wage growth shown as dashed lines and expected wage growth shown as solid lines). The 75th percentile line (gray) shows the highest values, fluctuating between 12-15% before 2020, then rising to peak at approximately 20% in 2021-2022 before moderating to about 15% by 2025. The median (blue) lines show more modest values, with expected wage growth (solid) remaining relatively stable around 3% throughout the period, while realized wage growth (dashed) shows more volatility, rising to around 7% after 2020 before declining to about 4-5% by 2025. The 25th percentile (red) lines show the lowest values, with expected wage growth remaining slightly positive and realized wage growth often showing negative values, particularly before 2020, and becoming slightly positive after 2020. A shaded bar marks February 2020 to April 2020, a period of business recession as defined by the National Bureau of Economic Research (NBER).

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Figure 5. Bin Scatter of Expected and Realized Income Growth in SCE

Panel A: Full Sample This is a scatter plot showing the relationship between expected growth (x-axis, ranging from -10 to 30) and observed income growth (y-axis, ranging from 0 to 21). The chart displays two variables: "Household Income Growth Expectations" (hollow orange circles) and "Wage Growth Expectations" (solid blue circles). The points show considerable dispersion, with no clear linear pattern. Household income growth expectations show wider variation, with some points appearing at higher expected growth values (20-30 range) corresponding to observed growth of 9-16%. Wage growth expectations are more concentrated in the -5 to 10 range on the x-axis, with one notable outlier showing very high observed income growth (around 20%) at an expected growth value of approximately 15.

Panel B: Restricted Sample This is a scatter plot showing the relationship between expected growth (x-axis, ranging from -10 to 30) and observed income growth for households below the 50th percentile (y-axis, ranging from -6 to 4). As in Panel A, the chart displays "Household Income Growth Expectations" (hollow orange circles) and "Wage Growth Expectations" (solid blue circles). In this restricted sample, both variables show a generally negative relationship between expected and observed growth - as expected growth increases, observed growth tends to decrease. The data points are more evenly distributed across the negative and positive values of observed growth, with most points clustered between -4 and 4 on the y-axis. The points at the highest expected growth values (20-30 range) correspond to the lowest observed growth (-4 to -6%).

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