A recent University of Michigan survey revealed that U.S. consumer sentiment has dropped to 50.8 in May, down from 52.2 in April. This marks the second-lowest reading ever recorded, indicating growing worries among consumers. The decline is largely driven by concerns about tariffs and their impact on the economy.
Rising Inflation Fears and Trade Uncertainty Weigh Heavily on Consumer Confidence
Consumers’ outlook on inflation has worsened, with year-ahead inflation expectations rising to 7.3% from 6.5%, and long-term expectations increasing slightly to 4.6% from 4.4%. These rising inflation concerns reflect fears that tariffs could contribute to higher prices in the near future.
Trade policy uncertainty remains a major factor affecting consumer confidence. Although the majority of the survey was conducted before the U.S. and China agreed on a 90-day tariff pause, nearly 75% of consumers mentioned tariffs as a concern, up from 60% in April. This highlights the significant role tariffs play in shaping consumer perceptions of the economy.
Consumer Sentiment Near Record Low as Tariff Concerns Fuel Inflation Fears and Economic UncertaintyPolicymakers Monitor Inflation Expectations Amid Persistently High Tariffs and Uncertain Impacts
Inflation expectations are critical for policymakers, especially the Federal Reserve, which monitors them closely before adjusting interest rates. Despite the tariff pause, the overall tariff rate on U.S. imports remains much higher than pre-2017 levels. Economists agree that tariffs may cause a short-term rise in prices, but their impact on long-term inflation is still uncertain.
Recent inflation data has not yet shown a clear effect from tariffs, with April’s consumer and producer price indexes coming in below expectations. The final consumer sentiment index for May, due May 30, will be important to watch to see if the tariff pause improves consumer confidence and inflation outlooks.
