Dive Brief:
- Consumer expectations for employment, personal income and business conditions during the next six months plunged in March to a 12-year low amid mounting anxiety about U.S. tariffs and trade policy, the Conference Board said Tuesday.
- The Conference Board’s Expectations Index dropped 9.6 points to 65.2, well below the 80-point threshold that usually presages recession. The Confidence Index, gauging consumers’ view of the current economy, fell for the fourth straight month.
- “Consumers’ optimism about future income — which had held up quite strongly in the past few months — largely vanished, suggesting worries about the economy and labor market have started to spread into consumers’ assessments of their personal situations,” Stephanie Guichard, senior economist for global indicators at the Conference Board, said in a statement.
Dive Insight:
Consumers this month also grew more pessimistic about the outlook for price pressures, Guichard said, noting that their expectations for inflation in 12 months increased to 6.2% from 5.8% in February.
“Consumers remained concerned about high prices for key household staples like eggs and the impact of tariffs,” she said.
The Conference Board data align with a survey by the University of Michigan that showed consumer expectations for long-term inflation soared this month at the fastest pace since 1993 as tariffs and other Trump administration policies stirred worries about a resurgence in price pressures.
Federal Reserve Chair Jerome Powell, speaking on March 19 after a two-day monetary policy meeting, downplayed rising consumer pessimism about short-term inflation, noting that mid- and long-term expectations for price pressures remain “well anchored.”
Powell characterized the University of Michigan data as “an outlier compared to market-based and compared to other survey-based assessments of longer-run inflation.”
“When we talk about inflation expectations being well anchored, we’re talking about longer-run inflation expectations, and they really haven’t moved much,” he said during a press conference.
At the same time, Powell acknowledged that near-term inflation expectations have recently increased. “We see this in both market- and survey-based measures and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.”
Policymakers aim to return inflation to their 2% target. They closely track inflation expectations, concerned that they can become self-fulfilling. Like consumers, their short-term expectations for price pressures have risen.
In a median estimate released on March 19, central bank officials predicted that their preferred measure for inflation — the core personal consumption expenditures price index less volatile food and energy prices — will end the year at 2.8%, 0.3 percentage point higher than their December estimate.
Progress in curbing inflation “has slowed since last summer,” Fed Governor Adriana Kugler said Tuesday, noting rising prices for goods as “evidence that inflation has accelerated in recent months.”
Recent increases in both short- and long-run inflation expectations “appears to be tied to trade policy,” Kugler said in a speech.
“I am paying close attention to the acceleration of price increases and higher inflation expectations,” she said, affirming her support for the central bank’s decision on March 19 to hold the federal funds rate at a range between 4.25% and 4.5%.
“I see policy as continuing to be restrictive,” Kugler said.
Echoing Powell, both Kugler and the Conference Board flagged an unusually high level of economic uncertainty.
Write-in survey responses “showed that inflation is still a major concern for consumers and that worries about the impact of trade policies and tariffs in particular are on the rise,” the Conference Board said. “There were also more references than usual to economic and policy uncertainty.”
