US consumer sentiment plunged to a nearly 2-1/2-year low in March and inflation expectations soared amid worries that President Donald Trump’s sweeping tariffs would boost prices and undercut the economy, reported Reuters.
Though US consumer prices rose at the slowest pace in four months in February, the mood has changed sharply amid possibilities of prices soaring in the coming months.
The deterioration in sentiment and inflation expectations — beliefs that people have about how much prices will increase in the future — reported by the University of Michigan Surveys of Consumers on Friday was across political party affiliations.
Some business surveys have also thrown up similar concerns, which drove consumers’ long-term inflation expectations to levels last seen in early 1993.
“The jury is back and the verdict is in. Trump 2.0 policies are harming the economy and the future prosperity of America,” Christopher Rupkey, chief economist at FWDBONDS, was quoted in the Reuters report.
“The consumer is frightened and sees sharply higher prices ahead despite the assurances from Washington that trade tariffs are good for the economy.”
Pressure on consumers is also coming from an unprecedented campaign to drastically shrink the government through tech billionaire Elon Musk’s Department of Government Efficiency, or DOGE, created by Trump, which
has slashed funding and
fired thousands of federal workers. Some have been reinstated following legal challenges, but fear of large-scale lay-off persists.
In his second term as the US President, Trump has slapped a raft of tariffs on a wide range of goods from key trade partners like Canada, China and the European Union, which have responded with duties of their own.
Some tariffs have been imposed and then suspended for a month.
Unlike these countries, India, which is also in the line of fire as Trump’s reciprocal tariffs are set to take effect from April 2, is, however, trying to work out a bilateral trade deal in a bid to avert wide-ranging American
tariffs.
On Thursday, Trump threatened to hit Europe with a 200 per cent tariff on wine, cognac and other alcohol imports. The tariff attack, which has escalated trade, has rattled financial markets, sparking a selloff on the stock market, may have also contributed to the depressing consumer sentiment, said the Reuters report.
Against this backdrop, Fed officials meeting next week are expected to leave the U.S. central bank’s benchmark overnight interest rate in the 4.25 - 4.50 per cent range, having reduced it by 100 basis points since September, and continue to assess the economic impact of the Trump administration’s policies, reported Reuters.
Financial markets expect the Fed to resume cutting borrowing costs in June after it paused its easing cycle in January amid a darkening economic outlook.
