Inflation vs Growth: What’s bothering US consumers the most ahead of US Fed policy meeting? Survey reveals..

Inflation vs Growth: US consumer sentiment plunged to a 2-1/2-year low in March 2025, and inflation expectations soared amid concerns that US President Donald Trump's sweeping tariffs, which have ignited a trade war, would boost prices. The University of Michigan’s consumer sentiment index tumbled 10.5 per cent monthly and plunged 27.1 per cent over the past year. 

The preliminary report shows that consumers’ expectations of annual US inflation climbed to 3.9 per cent from 3.5 per cent, the largest monthly jump since 1993. The University of Michigan said the index dropped to 57.9, the lowest level since November 2022, from a final reading of 64.7 in February.

The deterioration in sentiment and inflation expectations reported by the University of Michigan Surveys of Consumers on Friday was across political party affiliation. US consumers said, "Frequent gyrations in economic policies make it very difficult for consumers to plan for the future."

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Fears of higher prices, which drove consumers' long-term US inflation expectations to levels last seen in early 1993, challenge US Federal Reserve officials as they consider the next steps for the upcoming monetary policy.

US consumers gauge inflation threat amid Trump tariffs

48 per cent of the survey's respondents mentioned tariffs and expected them to push up prices in the future. Consumers' 12-month inflation expectations jumped to 4.9 per cent, the highest level since November 2022, from 4.3 per cent in February. The increase, which marked three straight monthly rises of 0.5 percentage points or more, was across all three political affiliations.

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Over the next five years, consumers saw inflation running at 3.9 per cent. That was the highest reading since February 1993 compared with 3.5 per cent in February. There was a sizeable increase among Independents. Expectations of higher prices also rose among Democrats and Republicans.

US consumers’ expectations of their finances dropped to the lowest level on record. The survey showed the current conditions gauge fell to a six-month low of 63.5. The expectations index fell to the lowest level since July 2022. Republicans recorded a 10 per cent drop in their expectations index, while Independents saw a 12 per cent drop. Expectations among Democrats fell 24 per cent.

The weakness in sentiment reflected a deterioration in expectations for the future across multiple facets of the US economy, including personal finances, employment, inflation, business conditions and the stock market. 

Trump on Thursday threatened to hit Europe with a 200 per cent tariff on wine, cognac and other alcohol imports. The tariff whiplash and escalation in the trade war have rattled financial markets, sparking a selloff on the stock market, which also contributed to depressing sentiment this month.

Pressure on consumers is also coming from government layoffs through tech billionaire Elon Musk's Department of Government Efficiency (DOGE) created by Trump, which has slashed funding and fired thousands of federal workers. Some have been reinstated following legal challenges.

A Reuters/Ipsos poll of Americans conducted March 11-12 showed that 57 per cent of survey participants believe Trump's moves to shake up the economy are too erratic, and 53 per cent think the tariff war will do more harm than good.

The correlation between consumer sentiment and spending has been weak, but economists said the deterioration in morale is concerning. "The pullback in confidence is a real threat to consumer spending," said Bill Adams, chief economist at Comerica Bank. “People who are afraid the economy is headed into a ditch won't buy new cars or houses, go out to eat or go on vacations."

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Trump suggests that tariffs are an economic cure-all for what it inherited from Biden. Trump joined office with an unemployment rate of four per cent and a consumer price index of three per cent, down from the June 2022 peak but still elevated. The US Fed's preferred inflation measure was 2.5 per cent, above its two per cent target.

The jump in inflation expectations will raise concerns at the Federal Reserve. Inflation expectations can become self-fulfilling because when consumers and businesses expect higher inflation, they take steps that make inflation worse. Businesses can raise prices preemptively if they anticipate their costs will rise.

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US Federal Reserve to unveil policy decision on March 19

Last week, US Fed Chair Jerome Powell said tariffs could pose problems for inflation-fighting efforts if they raise inflation expectations. The rising expectations could make it less likely the US Fed will cut its key interest rate this year, a top goal for the administration because such cuts could reduce mortgage rates.

US Fed officials meeting next week are expected to leave the US central bank's benchmark overnight interest rate in the 4.25 per cent-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.

Wall Street expects the Fed to resume cutting borrowing costs in June after it paused its easing cycle in January amid a darkening economic outlook. Economists said it would be hard for policymakers to ignore the persistent rise in inflation expectations. The policy rate was hiked by 5.25 percentage points to tame inflation in 2022 and 2023.

With inputs from Associated Press, Bloomberg, and Reuters