Middle-class Americans are increasingly worried about the economy and the Fed’s aggressive approach to fighting inflation, according to a new Harris Poll survey commissioned by Bloomberg News.

In a poll of 4,166 Americans, including 1,478 middle-class adults, 57% of the latter group said higher borrowing costs negatively affected household finances. Roughly 44% were stressed about the economy, and three-quarters said they spend more on goods and services.

About two-thirds of respondents admitted that higher prices for essential goods, rent, and mortgages were hurting them.

As bad as current conditions seem, Americans’ outlook on the future is even worse, as a mere 33% said they expect their finances to improve over the next year.

The disappointing results highlight a growing disconnect between what economists say about inflation and what the average consumer is experiencing.

What the data doesn’t reveal

“Economists aren’t sitting at kitchen tables with middle-class America,” said Harris Poll CEO John Gerzema. “For most, their paychecks are still chasing their bills and they feel they’re falling further and further behind.”

It’s easy to look at the numbers and conclude that America has slayed the inflation dragon. Since peaking at 9.1% in June 2023, CPI has fallen below 4%.

The problem? Many inflation categories are “sticky,” meaning prices don’t respond quickly to changes in demand. This is especially true for personal care services, medical services, and education.

The other problem? The CPI rate remains well above the Fed’s target of 2%. So long as that’s the case, the possibility of further rate hikes remains on the table.

Indeed, consumer inflation came in hotter than expected in September, with CPI advancing 3.7% on a 12-month basis.

“Just because the rate of inflation is stable for now doesn’t mean its weight isn’t increasing every month on family budgets,” Robert Frick, corporate economist with Navy Federal Credit Union, told CNBC. “That shelter and food costs rose particularly is especially painful.”

How much higher will rates go?

Professional traders think the odds of another rate hike could increase significantly early next year. CME Group’s FedWatch Tool places the odds of a January rate hike at around 33%.

Of course, a lot could change between now and then.

For starters, the Fed has two more meetings scheduled this year. While interest rates aren’t expected to change, the meetings could provide important clues about what the central bank intends to do next.

Some analysts are already pricing the possibility of a rate cut sometime in late 2024. In their view, it’s only a matter of time before the economy buckles under the pressure of elevated borrowing costs.

Regarding the Fed, “We think they will pause into next year, and we expect there to be a first rate cut sometime probably toward around the second quarter,” according to Matt Vance, senior director at real estate company CBRE.