The University of Michigan consumer sentiment index fell to 67.8 in February, the lowest level since July, as sentiment of both current and future conditions deteriorated.
The impact of recent announcements on tariffs was evident in the report as inflation expectations for the next 12 months spiked to 4.3% from 3.3% in the prior month. This was the highest level since late 2023.
The decline in sentiment was not concentrated on a single political party. Both Republican and Democrat respondents showed concerns about inflation and the current conditions of the economy amid heightened trade tensions.
The data showed less confidence on the government’s success in taming inflation. The subindex for “government doing a good job fighting inflation and unemployment” fell to the lowest point since late 2023 as well.
Together with the strong jobs report released on Friday, the spike in consumer inflation expectations was not what the Federal Reserve was hoping for.
Some of the risks around inflation expectations have been built into the Fed’s decision to keep rates unchanged.
But if the complications around the current trade war persists, sentiment surrounding inflation might continue to deteriorate, putting more pressure on inflation and the Fed.
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