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Americans fear faster inflation is on the horizon.

(Reuters) -The Federal Reserve's latest Monetary Policy Report to Congress, released on Friday, was upbeat about the state of the economy but warned about some concerning aspects of the financial system. The report, which comes ahead of next week's testimony before Congress by Fed Chair Jerome Powell, said central bank officials remain committed to getting inflation back to 2% and noted that when it comes to interest rate policy changes officials “will carefully assess incoming data, the evolving outlook, and the balance of risks.” The release described the overall economy as doing well amid a solid and better-balanced job market and declining inflation pressures.

Employment gains for November and December were revised up in total by 100,000, the Labor Department said.

The market-based probability of a June interest-rate cut dropped to barely above 50% after the University of Michigan Surveys of Consumers showed households think inflation a year from now will be 4.3%, a full percentage point higher than they thought it would be last month, and an earlier report from the Labor Department showing the unemployment rate was 4% in January. Before the reports traders had seen about a 63% chance of a June rate cut.

U.S. stock indexes are drifting lower on Friday after a discouraging report suggested U.S. consumers are bracing for higher inflation over the next year. The S&P 500 was 0.3% lower in morning trading, though it remains on track for a modest gain for the week. The action was stronger in the bond market, where Treasury yields climbed after a report suggested sentiment is unexpectedly souring among U.S. consumers.

The University of Michigan Surveys of Consumers on Friday said its Consumer Sentiment Index dropped to 67.8 from January's final reading of 71.1, which was also the consensus expectation among economists polled by Reuters. The drop occurred across age and wealth groups and weakened regardless of political affiliations, survey Director Joanne Hsu said in a statement.

NEW YORK (Reuters) -A fresh look at the pace of inflation will test the U.S. stock market in the coming week, as investors worry that President Donald Trump's tariff plans are endangering Wall Street's hopes for interest rate cuts this year. The benchmark S&P 500 remained about 1% below record-high levels, even as stocks were whipsawed this week by headlines over Trump's plans to impose tariffs on the largest U.S. trading partners. Tariffs are widely seen as inflationary, complicating the picture for the Federal Reserve.