Decline in US Consumer Sentiment Reaches Near-Record Depth in May Due to Inflation Concerns and Tariff Uncertainty
Jerome Powell, Chairman of the Federal Reserve, delved into how the central bank's policy framework might adapt to heightened volatility in inflation and recurring supply shocks. (Credit: Bloomberg)
There's been a significant drop in American optimism in May as concerns surrounding future inflation soared and fears lingered about the impact of Donald Trump's tariffs.
The University of Michigan Surveys of Consumers released its preliminary Consumer Sentiment Index for May, which dipped to 50.8, down from a final reading of 52.2 in April. Economists polled by Reuters projected the index to climb to 53.4.
The downturn leaves the consumer sentiment index down 30% since January 2025, after five consecutive months of declines. The 50.8 reading is the second-lowest reading on record, following June 2022, which marked the peak of the most recent inflationary cycle.
"Tariffs were spontaneously mentioned by more than half of consumers, up from almost 60% in April; ongoing trade policy uncertainty continues to dominate consumers' thoughts about the economy," said Surveys of Consumers Director Joanne Hsu.
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Consumer sentiment saw a fifth consecutive monthly decline in May. (HUM Images/ Universal Images Group via Getty Images / Getty Images)
The survey closed two days after Trump announced a deal with China to temporarily lower tariffs for 90 days, with tariffs on Chinese goods falling from 145% to 30%, while China's tariffs on U.S. exports reduced from 125% to 20%.
The short-term tariff suspension aims to create time for negotiations on a longer-term agreement.
"Many survey measures showed some positive changes following the temporary reduction of China tariffs, but these preliminary gains were too small to reverse the overall sentiment—consumers continue to express downbeat views about the economy," Hsu observed.
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Fed Chair Jerome Powell has stated that the Fed will keep an eye out for signs of tariff-induced price hikes. (Olivier Douliery/AFP via Getty Images / Getty Images)
The report indicated a nearly 10% decrease in current assessments of personal finances due to weakening incomes.
Inflation expectations for the upcoming year rose to 7.3% this month, up from 6.5% in April. This increase was observed among both democratic and Republican respondents surveyed. The 7.3% one-year inflation outlook is the highest since April 1981.
Long-run inflation expectations inched up to 4.6% in May from 4.4% the previous month, due to a more significant surge among Republican respondents.
Cost pressures from tariffs are driving higher inflation expectations, raising the risk that the Federal Reserve may delay interest rate cuts, consequently amplifying economic uncertainty and consumer apprehension.
- The economic uncertainty due to tariffs, as discussed by Jerome Powell, could potentially impact the Federal Reserve's policy, especially in light of rising inflation expectations as indicated in the University of Michigan Surveys of Consumers report.
- The ongoing trade policy disputes, such as the tariffs, are being closely monitored by the Federal Reserve, as they have the potential to cause tariff-induced price hikes, which could consequently impact the economy, finance, and business sectors.
- In the context of general-news, the surge in inflation expectations, as seen in the latest University of Michigan Surveys of Consumers report, is a cause for concern, as it not only reflects apprehension among consumers about the economy but also raises the risk of further interest rate delays by the Federal Reserve, contributing to economic uncertainty.
