The University of Michigan’s Inflation Expectations survey for November 2025 reports a 4.50% annual inflation expectation, down from 4.60% in October and well below the 5.00% peak recorded in June 2025. This data, sourced from the Sigmanomics database, reflects a gradual easing of inflation fears among US consumers over the past five months.

Drivers this month

• Shelter costs remain a significant contributor, adding approximately 0.18 percentage points to inflation expectations.
• Energy price volatility has moderated, reducing upward pressure by roughly 0.10 percentage points.
• Used car prices showed a minor negative contribution of -0.05 percentage points, reflecting normalization in durable goods.

Policy pulse

The 4.50% reading sits above the Federal Reserve’s 2% inflation target but continues the downward trend from mid-year highs. This suggests that while inflation expectations remain elevated, the impact of monetary tightening is gradually anchoring consumer sentiment.

Market lens

Immediate reaction: US Treasury 2-year yields dipped 5 basis points following the release, while the USD Index weakened slightly by 0.15%, reflecting market relief at the lower-than-expected inflation outlook.

Michigan Inflation Expectations serve as a leading gauge of consumer inflation sentiment, closely watched alongside core CPI and PCE inflation data. The current 4.50% expectation contrasts with the US core CPI running near 3.70% YoY and PCE inflation at 3.50%, indicating consumers anticipate somewhat higher inflation than official measures but less than mid-2025 peaks.

Monetary Policy & Financial Conditions

The Federal Reserve’s ongoing rate hikes, now totaling a 450 basis point increase since early 2024, have tightened financial conditions significantly. The real yield on 2-year Treasuries has risen to approximately 1.80%, reinforcing disinflationary pressures. Credit spreads remain stable, suggesting no immediate stress in lending markets.

Fiscal Policy & Government Budget

Fiscal discipline has improved with the US budget deficit narrowing to 4.10% of GDP in Q3 2025, down from 5.30% in 2024. Reduced stimulus and restrained government spending contribute to subdued demand-side inflation pressures.

External Shocks & Geopolitical Risks

Geopolitical tensions in Eastern Europe and East Asia continue to pose supply chain risks, but recent easing in energy markets and improved logistics have softened inflationary shocks. Commodity prices have stabilized, with Brent crude averaging $78 per barrel in November, down from $95 in June.

Drivers this month

• Shelter inflation remains sticky but shows signs of plateauing.
• Energy prices have stabilized, reducing volatility in expectations.
• Durable goods inflation, especially used cars, has eased.

Policy pulse

The Federal Reserve’s forward guidance and recent rate hikes appear to be gradually anchoring inflation expectations, though the 4.50% level remains above comfort zones for policymakers.

Market lens

Immediate reaction: The 2-year Treasury yield dropped 5 basis points, while the USD Index declined 0.15%, signaling market relief and a slight risk-on tilt.

Looking ahead, inflation expectations will be shaped by several key factors. The Federal Reserve’s policy trajectory, fiscal discipline, and external shocks remain critical. We outline three scenarios:

Bullish Scenario (30% probability)

• Inflation expectations fall below 3.50% by mid-2026.
• Monetary policy achieves soft landing with no recession.
• Supply chains normalize, energy prices stabilize or decline.

Base Scenario (50% probability)

• Expectations hover around 4.00%–4.50% through 2026.
• Fed maintains restrictive stance; moderate economic growth.
• Geopolitical risks contained but persistent.

Bearish Scenario (20% probability)

• Expectations rise above 5.00% due to renewed supply shocks.
• Fed forced to tighten aggressively, risking recession.
• Fiscal stimulus returns amid political pressures.

Structural & Long-Run Trends

Long-term inflation expectations have shown resilience above 2%, reflecting structural factors such as labor market tightness, demographic shifts, and evolving supply chains. The current 4.50% level, while down from mid-year highs, remains elevated relative to pre-pandemic norms (~2.50%).

The November 2025 Michigan Inflation Expectations report confirms a gradual easing of inflation fears among US consumers. Monetary and fiscal policies are exerting downward pressure, but inflation remains a key macroeconomic challenge. Market reactions suggest cautious optimism, yet geopolitical and structural risks warrant ongoing vigilance. Investors and policymakers should monitor inflation expectations closely as a barometer of future price dynamics and economic resilience.

Final Takeaway: The November 2025 Michigan Inflation Expectations reading at 4.50% signals a cautiously optimistic shift in US inflation sentiment, reflecting the combined effects of policy tightening and easing external pressures. Vigilance remains essential as structural inflation drivers persist.