The decline in sentiment indicates a worsening outlook for the future across various sectors of the economy, including personal finances, job security, and inflation.
Consumer sentiment in the United States has dropped to its lowest level in nearly two and a half years, while inflation expectations have surged amid concerns that President Donald Trump’s extensive tariffs—sparked by a trade war—would increase prices and undermine the economy.
The decline in sentiment reported in March and the inflation expectations released by the University of Michigan Surveys of Consumers on Friday were noted across all political affiliations. Consumers expressed that “frequent fluctuations in economic policies make it extremely challenging for them to plan for the future.”
This sentiment mirrors similar concerns highlighted in various business surveys. The unpredictability stemming from Trump’s inconsistent tariff strategies and escalating trade tensions threatens to derail economic progress. The apprehension over rising prices, which pushed consumers’ long-term inflation expectations to heights not seen since early 1993, presents a significant challenge for Federal Reserve officials as they contemplate their next monetary policy actions.
“The verdict is clear: Trump 2.0 policies are detrimental to the economy and the future prosperity of America,” stated Christopher Rupkey, chief economist at FWDBONDS. “Consumers are anxious and foresee significantly higher prices ahead, despite reassurances from Washington that trade tariffs are beneficial for the economy.”
The University of Michigan reported that its Consumer Sentiment Index fell to 57.9, the lowest since November 2022, down from a final reading of 64.7 in February. Economists surveyed by the Reuters news agency had predicted a decline to 63.1.
This index has wiped out all the gains made following Trump’s election victory in November.
The decline in sentiment this month indicates a worsening expectation for the future across several aspects of the economy, including personal finances, employment, inflation, business conditions, and the stock market.
Republicans experienced a 10 percent drop in their expectations index, while independents faced a 12 percent decrease. Expectations among Democrats plummeted by 24 percent.
“Consumers of all three political affiliations agree that the outlook has diminished since February,” articulated Surveys of Consumers Director Joanne Hsu. “Many consumers mentioned the high level of uncertainty surrounding policy and other economic factors.”
Tariff Whiplash
Trump has imposed numerous tariffs on a broad array of goods from key trading partners such as Canada, China, and the European Union, which have retaliated with their own duties. Some tariffs have been implemented and then temporarily lifted.
On Thursday, Trump warned of a potential 200 percent tariff on wine, cognac, and other alcohol imports from Europe. This tariff whiplash and the intensifying trade war have unsettled financial markets, contributing to stock market sell-offs that have further dampened sentiment this month.
Consumers’ inflation expectations for the next 12 months surged to 4.9 percent, the highest since November 2022, up from a prediction of 4.3 percent in February. For the next five years, consumers anticipate inflation at 3.9 percent, the highest since February 1993, compared to 3.5 percent in February.
Stocks on Wall Street showed gains on Friday after suffering losses in previous sessions, while the dollar held steady against a selection of currencies. US Treasury yields increased.
Federal Reserve officials, meeting next week, are expected to maintain the US central bank’s benchmark overnight interest rate within the 4.25 percent to 4.5 percent range, having cut it by 100 basis points since September as they continue to evaluate the economic impact of the Trump administration’s policies.
Financial markets anticipate that the Fed will resume lowering borrowing costs in June after pausing its easing cycle in January in response to an increasingly gloomy economic outlook. The policy rate was raised by 5.25 percentage points in 2022 and 2023 to combat inflation.
Additionally, Trump has launched an unprecedented effort to significantly reduce the size of government through tech billionaire Elon Musk’s Department of Government Efficiency, or DOGE, which has led to funding cuts and the dismissal of thousands of federal employees.
Unions representing some federal workers have contested the layoffs, resulting in reinstatements.
A recent Reuters/Ipsos poll conducted with Americans on Tuesday and Wednesday revealed that 57 percent of respondents believe Trump’s efforts to alter the economy are excessively erratic, and 53 percent feel that the tariff war will be more harmful than beneficial.
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