Rising Inflation Fears Could Jeopardize US Economic Soft Landing

Rising Inflation Fears Could Jeopardize US Economic Soft Landing

2025-03-03 @ 13:02

Americans’ Rising Inflation Concerns Threaten to Undo Soft Landing

Inflation Expectations and Consumer Confidence

The latest data from the January 2025 Survey of Consumer Expectations by the Federal Reserve Bank of New York shows that while short- and medium-term inflation expectations hold steady at 3.0%, long-term expectations have risen by 0.3 percentage points to the same level. This increase is largely driven by respondents with a high-school education or less, reflecting heightened anxiety about inflation’s trajectory.

Consumer confidence is also showing troubling signs. The Consumer Confidence Index saw its most significant monthly drop in over four years this February. Analysts attribute this decline to growing economic concerns, particularly linked to potential tariffs and shifting trade policies under the Trump administration.

Impact of Tariffs and Trade Policies

The administration’s tariff policies are intensifying inflation concerns. A substantial percentage of Americans are bracing for higher prices due to import tariffs:

80% anticipate rising costs

45% expect significant price increases

Market analysts, including Adam Crisafulli from Vital Knowledge, warn that policy uncertainty under Trump is worsening consumer sentiment. The erosion of confidence could push the economy towards a slowdown or even a more severe downturn.

Labor Market and Household Spending

Despite positive trends in the labor market, such as a decline in unemployment fears and improved job-finding expectations, some troubling indicators remain:

The perceived probability of job loss in the next 12 months has surged

Household spending growth expectations have dropped to a four-year low

Economist Carl Weinberg from High Frequency Economics stresses that declining consumer and business confidence is a precursor to economic deceleration. As spending tightens, economic growth could face significant headwinds.

Economic Outlook and Market Reactions

Americans remain sharply divided in their economic outlook based on political affiliation:

40% expect rising inflation due to Trump’s policies

35% believe inflation will decrease

70% of Democrats anticipate higher inflation

71% of Republicans expect lower inflation

This drop in consumer confidence is already impacting financial markets. The S&P 500, Dow Jones Industrial Average, and Nasdaq have all experienced declines following the release of confidence index data, signaling investor concerns about economic instability.

Expert Insights

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, highlights that the current downturn in consumer confidence suggests an urgent shift in consumer spending behavior. He warns that recent durable goods purchases may only reflect consumers rushing to buy before additional tariffs take effect.

As inflation worries grow, declining confidence and increased economic uncertainty threaten the prospects of a soft landing. Economists and investors alike remain on high alert for further developments.