Consumer sentiment plunges to 2-year low amid tariff and inflation worries

The latest data from the University of Michigan has revealed a significant drop in U.S. consumer sentiment for the month of March, reaching a level not seen in over two years. The preliminary gauge, which was released on Friday, shows a reading of 57.9, down from 64.7 in the previous month. This marks the lowest level since November of 2022, catching economists off guard as they had expected consumer confidence to remain relatively stable.

According to Carl Weinberg from High Frequency Economics, this decline in consumer sentiment can be attributed to the uncertainty surrounding the economic policies of the Trump administration. With consumers unsure about what lies ahead, there is a sense of caution that may impact spending habits until a clearer economic agenda is presented.

The White House’s policy uncertainty has had a ripple effect, causing consumer sentiment to plummet, the stock market to enter correction territory, and leading to an increase in recession probabilities, as noted by Daniel Hornung, former deputy director of the National Economic Council.

Consumers are particularly concerned about inflation, with expectations of a 4.9% annual increase in the next year, the highest since 2022. The ongoing trade wars initiated by President Trump have raised fears about the economic impact, as tariffs on imported goods could result in higher prices for consumers. This has led to a decline in consumer confidence, posing a threat to consumer spending, which accounts for a significant portion of U.S. economic activity.

Furthermore, consumers are bracing for long-term inflation issues, with expectations of prices rising at an annual rate of 3.9% over the next five to 10 years. This significant jump in inflation expectations, exceeding the Federal Reserve’s goal of 2%, indicates a growing concern among consumers about the future economic landscape.

Overall, the latest data on consumer sentiment highlights the impact of economic uncertainty on consumer behavior and spending habits. As the Trump administration continues to navigate trade policies and economic challenges, consumers are left grappling with inflation concerns and wavering confidence in the economy.