Weakness in sentiment reflects a deterioration in expectations for the future across multiple facets of the economy, including personal finances, employment, and inflation.
Consumer sentiment in the United States has plummeted to its lowest level in nearly two and a half years, while inflation expectations have surged amid concerns that President Donald Trump’s sweeping tariffs, which have sparked a trade war, will drive up prices and weaken the economy.
The decline in sentiment in March and the rise in inflation expectations, as reported by the University of Michigan Surveys of Consumers on Friday, cut across political party lines, with consumers stating that “frequent shifts in economic policies make it very difficult to plan for the future.”
This echoes similar concerns in some business surveys. The uncertainty caused by Trump’s fluctuating tariffs and escalating trade tensions threatens to derail the economic expansion. Fears of higher prices, which pushed consumers’ long-term inflation expectations to levels last seen in early 1993, pose a challenge for Federal Reserve officials as they deliberate on the next steps for monetary policy.
“The jury is back, and the verdict is in. Trump 2.0 policies are harming the economy and the future prosperity of America,” said Christopher Rupkey, chief economist at FWDBONDS. “Consumers are frightened and anticipate sharply higher prices ahead, despite assurances from Washington that trade tariffs are good for the economy.”
The University of Michigan reported that its Consumer Sentiment Index dropped to 57.9, the lowest level since November 2022, down from a final reading of 64.7 in February. Economists surveyed by Reuters had predicted the index would fall to 63.1.
The index has now erased all the gains made following Trump’s election victory in November.
The decline in sentiment this month reflects a deterioration in expectations for the future across various aspects of the economy, including personal finances, employment, inflation, business conditions, and the stock market.
Republicans recorded a 10 percent drop in their expectations index, while independents saw a 12 percent decrease. Expectations among Democrats plummeted by 24 percent.
“Consumers from all three political affiliations agree that the outlook has weakened since February,” said Joanne Hsu, Director of the Surveys of Consumers. “Many consumers cited the high level of uncertainty surrounding policy and other economic factors.”
Tariff Whiplash
Trump has imposed a series of tariffs on a wide range 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 suspended for a month.
On Thursday, Trump threatened to impose a 200 percent tariff on wine, cognac, and other alcohol imports from Europe. The back-and-forth on tariffs and the escalation of the trade war have unsettled financial markets, triggering stock market selloffs, which also contributed to the decline in sentiment this month.
Consumers’ 12-month inflation expectations jumped to 4.9 percent, the highest since November 2022, up from a 4.3 percent prediction in February. Over the next five years, consumers expect inflation to average 3.9 percent, the highest reading since February 1993, compared to 3.5 percent in February.
Wall Street stocks traded higher on Friday after being battered in previous sessions. The dollar remained stable against a basket of currencies, while U.S. Treasury yields rose.
Federal Reserve officials meeting next week are expected to keep the central bank’s benchmark overnight interest rate in the range of 4.25 percent to 4.5 percent, having reduced it by 100 basis points since September, as they continue to assess the economic impact of the Trump administration’s policies.
Financial markets anticipate the Fed will resume cutting borrowing costs in June after pausing its easing cycle in January amid a worsening economic outlook. The policy rate was raised by 5.25 percentage points in 2022 and 2023 to combat inflation.
Trump has also launched an unprecedented initiative to drastically shrink the government through tech billionaire Elon Musk’s Department of Government Efficiency (DOGE), which has cut funding and laid off thousands of federal workers.
Unions representing some of the affected civil servants have challenged the layoffs, leading to reinstatements.
A Reuters/Ipsos poll conducted on Tuesday and Wednesday showed that 57 percent of respondents believe Trump’s economic moves are too erratic, and 53 percent think the tariff war will do more harm than good.
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