U.S. consumers significantly lowered their medium-term inflation expectations in July, according to the Federal Reserve Bank of New York's Survey of Consumer Expectations.

The median three-year inflation expectation fell to 2.3% in July, marking the lowest level since the survey began in 2013.

Consumer confidence regarding inflation improved, with the three-year inflation outlook dropping to a record low.

Inflation expectations for one- and five-year horizons remained stable at 3% and 2.8%, respectively.

The Labor Department is expected to release its consumer price index report, projecting a 0.2% increase in July and an annual rate of 3%, still above the Federal Reserve's 2% target.

The survey indicated a 13.3% probability of missing a minimum debt payment, the highest since April 2020, particularly affecting individuals earning below $50,000.

Consumers, especially those with lower incomes, report increased anxiety about missing debt payments in the upcoming year.

Despite a rising unemployment rate, perceptions of job loss probability decreased to 14.3%, while confidence in voluntary job changes rose to 20.7%, the highest since February 2023.

Households expect spending growth to exceed income growth, with median spending growth expectations falling to 4.9%, the lowest since April 2021.

Survey respondents expect gas prices to rise by 3.5% and food prices by 4.7% over the next year, both showing slight decreases from June's expectations.

Market predictions suggest a high likelihood of a quarter percentage-point rate cut by the Federal Reserve in September.

Recent inflation measures indicate a return toward the Fed's 2% target, with expectations of an interest rate cut next month.