The mood among consumers in the United States has taken a sharp dive to its lowest level in almost two and a half years, with concerns about rising inflation amidst President Donald Trump’s tariffs sparking fears of an economic downturn.
Data from the University of Michigan Surveys of Consumers released on Friday showed that both Democrats and Republicans alike were feeling the effects of the unpredictable economic policies. Consumers expressed their struggles with planning for the future in the face of constant policy changes.
This sentiment is reflected in various business surveys as well, with the ongoing trade war and uncertainty surrounding tariffs potentially derailing economic growth. The fear of higher prices has pushed long-term inflation expectations to levels not seen since the early 1990s, presenting a challenge for the Federal Reserve in determining their next steps for monetary policy.
Economist Christopher Rupkey of FWDBONDS stated, “The evidence is clear – the economic policies under Trump 2.0 are harming the economy and the future prospects of America. Consumers are worried and foresee significant price increases despite reassurances from the government about the benefits of trade tariffs.”
The Consumer Sentiment Index from the University of Michigan fell to 57.9 in March, the lowest level since November 2022, erasing all the gains made following Trump’s election victory. Sentiment was particularly low regarding expectations for personal finances, employment, inflation, business conditions, and the stock market.
Expectations dropped across all political affiliations, with Republicans down by 10%, independents by 12%, and Democrats by 24%. Director Joanne Hsu noted the shared concern among consumers of all political backgrounds due to the high level of uncertainty surrounding economic factors.
Trump’s implementation and subsequent suspension of tariffs on various goods from key trading partners have led to a back-and-forth escalation in the trade war, causing upheaval in financial markets and contributing to the decline in sentiment among consumers.
Inflation expectations for the next 12 months rose to 4.9%, the highest since November 2022, with a prediction of 3.9% over the next five years. Stock markets, after recent selloffs, were trading higher on Friday, while the dollar remained steady and US Treasury yields increased.
Looking ahead, the Federal Reserve is expected to keep interest rates steady in the upcoming meeting, taking into account the impact of the administration’s policies on the economy. Despite a pause in rate cuts earlier this year, markets anticipate a resumption of easing in June to address the economic challenges posed by the ongoing uncertainty surrounding tariffs and trade policies.
Additionally, Trump’s efforts to downsize the government through the Department of Government Efficiency have led to layoffs and legal challenges from unions representing affected workers, with some employees being reinstated.
A recent poll conducted by Reuters/Ipsos found that a majority of Americans believe Trump’s economic actions are too unpredictable and fear that the tariff war will ultimately do more harm than good.
