^{Source: Blooomberg}

U.S. consumer sentiment plummeted in early April, reaching its second-lowest level on record, as inflation expectations soared to heights not seen since the early 1980s. The University of Michigan's preliminary Consumer Sentiment Index dropped to 50.8, down from 57.0 in March, marking a 10.9% monthly decline and a 34.2% decrease compared to a year ago. ​

Inflation Expectations Reach Multi-Decade Highs

Short-term inflation expectations surged, with consumers anticipating a 6.7% increase over the next year—the highest level since November 1981. Long-term expectations over a five-year horizon also rose to 4.4%, the highest since June 1991. ​

Broad-Based Decline Across Demographics

The deterioration in sentiment was widespread, affecting all age, income, education, geographic, and political groups. Survey Director Joanne Hsu noted that consumers reported multiple warning signs raising recession risks, including expectations for worsening business conditions, personal finances, incomes, inflation, and labor markets. ​

Rising Unemployment Concerns

Unemployment fears have escalated, reaching their highest level since 2009. Expectations of higher unemployment rates have more than doubled since November, reflecting growing anxiety about the labor market. ​

Market Volatility Amid Trade Tensions

The sharp decline in consumer sentiment coincides with increased market volatility driven by escalating trade tensions between the U.S. and China. China recently raised tariffs on U.S. goods from 84% to 125% in response to President Trump's increase of U.S. tariffs on Chinese imports to 145%. These developments have unsettled global markets and fueled fears of a recession.​

Federal Reserve's Stance

Federal Reserve officials are closely monitoring the situation. Boston Fed President Susan Collins emphasized the need for a steady monetary policy stance amid the heightened inflation risks posed by the new tariffs. She projected that inflation could exceed 3% in the near term due to tariffs but expects it to return to the Fed’s 2% target over time. ​

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The convergence of surging inflation expectations, declining consumer sentiment, and escalating trade tensions underscores the fragility of the current economic landscape. Policymakers and investors alike face heightened uncertainty as they navigate these challenging dynamics.​

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