Dive Brief:

• Consumer sentiment plunged more than forecast this month and expectations for long-term inflation soared at the fastest pace since 1993 as tariffs and other Trump administration policies stirred anxiety about a resurgence in price pressures, according to a consumer survey by the University of Michigan released Friday.
• Sentiment fell 11% in March for a cumulative decline of 22% since December, the university said in a press release. The mood dimmed among consumers regardless of age, education, income, wealth, location and political affiliation, hitting the lowest level since 2022.
• “This is a horrific report,” Pantheon Macroeconomics Chief Economist Samuel Tombs said in a client note. “Elevated economic policy uncertainty and the sharp drop in stock prices have greatly undermined consumer confidence.”

Dive Insight:

Federal Reserve officials, while meeting March 18-19 to assess monetary policy, will likely zero in on the rise in expectations for five- to 10-year inflation from 3.5% in February to 3.9% this month, as measured in the university survey.

Policymakers closely track the long-term outlook on price pressures among consumers, concerned that inflation worries can become self-fulfilling.

“We pay close attention to a broad range of measures of inflation expectations, and some near-term measures have recently moved up,” Fed Chair Jerome Powell said in a March 7 speech, noting that “both consumers and businesses are mentioning tariffs as a driving factor.

“Beyond the next year or so, however, most measures of longer-term expectations remain stable and consistent with our 2% inflation goal,” Powell said.

The Fed will likely hold the benchmark rate steady at its coming meeting, he indicated, affirming that policymakers want to see a sustained decline in prices before trimming borrowing costs.

Many factors beyond price pressures weakened consumer expectations, according to the University of Michigan survey.

“While current economic conditions were little changed, expectations for the future deteriorated across multiple facets of the economy, including personal finances, labor markets, inflation, business conditions and stock markets,” Joanne Hsu, director of the university’s survey, said in a statement.

“Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences,” Hsu said.

The outlook among Republicans dimmed, as well as among Democrats and Independents, she said. “Despite their greater confidence following the election, Republicans posted a sizable 10% decline in their expectations index in March.”

Expectations for inflation in a year jumped from 4.3% last month to 4.9% in March — the highest level since November 2022, she said. Year-ahead inflation expectations have risen by 0.5 percentage point or more for three straight months.

The decline in the university’s index for consumer expectations during the first quarter suggests that year-over-year growth in consumption may slip to 1.5% during Q1 from 3.2% in Q4, Tombs said. “The March level alone points to even slower growth — just 0.5%,” he said.

Measures of consumer moods and other “soft data” may swing from month to month and not align with spending.

Yet recent consumer surveys may foreshadow a coming downturn in purchases, according to Robert Frick, corporate economist with Navy Federal Credit Union.

“Generally, ups and downs in measures such as consumer confidence and consumer sentiment don’t reflect actual purchasing,” Frick said in an email. “But the drastic drops in both recently, combined with other factors, point to a likely slowdown in spending.

“For example, we’ve also seen the saving rate rise, a defensive indicator, and retailers forecast consumers tightening their belts,” he said. “As the [University of Michigan] survey points out, uncertainty over presidential policies have consumers on edge, and makes it tough to plan.”