A Disturbance in the Force... of the Economy: Tariff Fears Grip American Consumers!

The Dark Side Clouds Consumer Minds

I sense a great disturbance in the Force or rather in the American economy. A recent University of Michigan survey reveals a chilling truth: consumers are growing increasingly fearful of the inflationary impact of tariffs. The index of consumer sentiment has plummeted to a dismal 50.8 a far cry from the already pathetic 52.2 in April. This is not just a minor setback; it's the second lowest reading ever recorded second only to the dark days of June 2022. Perhaps they need a more powerful weapon… like a fully operational economy!

Inflation Expectations: Higher Higher Higher!

The outlook for price changes is equally grim. Year ahead inflation expectations have surged to 7.3% from a mere 6.5% last month. Long term inflation expectations aren't much better creeping up to 4.6% from 4.4%. It's as if the economic rebels are tightening their grip choking the life out of the average consumer. "These will be a day long remembered..." if inflation keeps rising at this rate.

A Brief Respite? Or a False Hope?

There is a glimmer of hope however fleeting. The survey was largely completed before the U.S. and China agreed to a 90 day ceasefire on most tariffs. Could this be the diplomatic shield we desperately need? Or is it merely a trick a distraction to lull us into a false sense of security? Only time will tell but I have a bad feeling about this.

Tariffs: The Phantom Menace of the Economy

According to Joanne Hsu director of Surveys of Consumers tariffs are the bane of consumer thought. "Tariffs were spontaneously mentioned by nearly three quarters of consumers up from almost 60% in April; uncertainty over trade policy continues to dominate consumers' thinking about the economy," she stated. It appears that these tariffs have become the phantom menace lurking in the shadows and casting a dark cloud over the economic landscape.

The Fed's Dilemma: To Cut or Not to Cut?

Inflation expectations are now under intense scrutiny by investors and policymakers. Federal Reserve Chair Jerome Powell has made it clear that the central bank is hesitant to cut rates until they are sure that long term inflation expectations are under control. It seems the Fed is caught between the dark side and the light unsure which path to take. They must choose wisely or the economy will surely fall.

The Final Verdict Awaits...

The final consumer sentiment index for the month is scheduled for release on May 30th. All eyes will be on this report to see if the tariff pause has had any positive impact on consumer morale. Will the Force be with us or will the dark side continue to dominate? The fate of the economy may very well hang in the balance. I find their lack of economic faith disturbing.