APRIL 14, 2025 – UNCERTAINTY CAUSES CONSUMER SENTIMENT TO DIVE
Rapidly changing decisions on tariffs have caused markets to whipsaw in the last weeks. As such, consumer sentiment has fallen to one of the lowest levels on record, as people have started to fear a recession as well as a steep increase in inflation.
Americans’ inflation expectations for 2025 jumped to 6.7 percent in April from 5 percent in March. Long run inflation expectations also were up to 4.4 percent, from 3 percent a year ago. These numbers are well above the Fed’s targeted 2 percent.
Inflation expectations are critical, as it is thought they can become self-fulfilling. In expectation of rising prices, people will demand higher wages, and businesses may raise prices in anticipation.
The three-month pause in tariffs likely will not change anything for the Fed. They will wait for more clarity on the direction the economy is headed before making any changes to rates.