The weakness of emotions reflects worsening expectations for the future across multiple aspects of the economy, including personal finances, employment, and inflation.
U.S. consumer sentiment slumped to nearly two and a half years’ lows, and inflation expectations surge amid concerns that President Donald Trump’s sweeping tariffs, which sparked a trade war, would raise prices and hone the economy.
The inflation expectations reported in a March surge in sentiment and a University of Michigan survey on consumers on Friday exceeded ties with political parties who say “the frequent turnover of economic policies makes it extremely difficult for consumers to plan for the future.”
This reflects similar concerns in some business research. The uncertainty created by Trump’s repeated, unaddressed tariffs and escalation of trade tensions risk derailing the economic expansion. The fear of rising prices, which drove consumers to the level they last saw in early 1993, poses challenges for Federal Reserve officials when considering the next steps in monetary policy.
Christopher Lapkey, chief economist at FWDBonds, said: “Consumers are scared and are ahead of the sharply high prices despite assurances that trade tariffs from Washington are good for the economy.”
The University of Michigan said the Consumer Sentiment Index has fallen from its final reading of 64.7 in February to 57.9, the lowest level since November 2022. The economists voted by the Reuters agency predicted that the index would fall to 63.1.
The index erased all profits posted in the aftermath of Trump’s election victory in November.
This month’s weak sentiment reflects worsening expectations for the future across multiple aspects of the economy, including personal finances, employment, inflation, business conditions and the stock market.
Republicans recorded a 10% drop in expectations index, while independents fell 12%. Democrats’ expectations fell 24%.
“Consumers in all three political alliances agree that their outlook has been weakening since February,” a survey by consumer director Joanne HSU said. “Many consumers cited a high level of uncertainty about policy and other economic factors.”
Customs whiplash
Trump has hit numerous tariffs on a wide range of goods from major trading partners, including Canada, China and the European Union. Some customs duties were imposed and then suspended for a month.
Trump on Thursday threatened to strike Europe with 200% tariffs on wine, cognac and other alcohol imports. The tariff unevenness and escalation in the trade war rattles financial markets, causing sell-offs to the stock market, and again this month helped to suppress emotions.
Consumers’ 12-month inflation expectations jumped from a 4.3% forecast in February to a high of 4.9% since November 2022. Over the next five years, consumers saw an inflation of 3.9%. It was the best read since February 1993, compared to 3.5% in February.
Wall Street stocks were trading higher on Friday after being abused in previous sessions. The dollar had little change over the basket of currencies. The US Treasury yields will rise.
Federal officials are expected to leave the US Central Bank benchmark in the 4.25% to 4.5% range next week, cutting 100 basis points since September as they continue to assess the economic impact of Trump administration’s policies.
Financial markets hope to cut Fed borrowing costs in June after suspending the easing cycle in January. Policy rates increased by 5.25 percentage points in 2022 and 2023 to tame inflation.
Trump has also embarked on an unprecedented campaign to significantly reduce the government through Doge, which has significantly reduced the efficiency of tech billionaire Elon Musk, or funds, and fired thousands of federal workers.
Unions representing some of the civil servants challenged the layoffs, resulting in a return.
In a Reuters/Ipsos poll of Americans on Tuesday and Wednesday, 57% of survey participants believe Trump is too unstable in the economy, while 53% believe the tariff war is more harmful than good.