Tariff Fears Push Consumer Sentiment Near Record Low as Inflation Expectations Surge in May

U.S. consumers are growing increasingly worried that tariffs will drive up inflation, according to a recent University of Michigan survey. The preliminary consumer sentiment index for May dropped to 50.8 from April’s 52.2, marking the second-lowest level on record, only higher than the June 2022 reading. This decline reflects growing pessimism among consumers about the broader economic outlook, largely influenced by trade-related developments.

Inflation Expectations Climb as Tariff Concerns Intensify Among U.S. Consumers and Households

The survey revealed a troubling increase in inflation expectations. Consumers now expect year-ahead inflation to rise to 7.3%, up from 6.5% last month. Long-term inflation expectations also edged up slightly, from 4.4% to 4.6%. These rising expectations suggest that consumers are bracing for persistent price increases, driven in part by fears surrounding the impact of tariffs on imported goods.

Trade tensions remain a central concern for many Americans. Nearly 75% of consumers mentioned tariffs unprompted in the survey, a notable increase from 60% in April. Survey director Joanne Hsu highlighted that uncertainty over trade policy is dominating consumer economic outlooks. Although the U.S. and China recently announced a 90-day pause on most tariffs, the news came after the majority of the survey responses had already been collected.

Federal Reserve Weighs Inflation Expectations Amid High Tariffs and Mixed Economic Signals

The Federal Reserve is closely monitoring inflation expectations as it considers future interest rate decisions. Chair Jerome Powell has emphasized that long-term expectations must remain stable to avoid delaying rate cuts. Despite temporary pauses in some import levies, the overall U.S. tariff rate remains significantly elevated compared to levels before President Trump’s term, contributing to inflation concerns among economists and policymakers alike.

Interestingly, recent inflation reports, such as the Consumer Price Index and Producer Price Index for April, have not indicated a direct inflationary impact from tariffs. This discrepancy has left analysts watching closely for further developments. The final consumer sentiment reading for May, scheduled for May 30, is expected to offer more insight into whether the recent tariff pause has improved public confidence in the economy.