Americans are increasingly bracing for higher inflation and are more likely to predict a recession, as expectations for future economic conditions plummet to a 12-year low. President Donald Trump’s erratic trade policies have introduced significant uncertainty among consumers, businesses, and investors alike. Federal Reserve officials are adopting a cautious stance, choosing to observe economic developments before making any adjustments to interest rates. Despite signs of economic fragility, the U.S. labor market remains robust, with unemployment holding steady at 4.1%.
Recent data underscores a deteriorating economic mood in the United States, as President Trump continues to drive his extensive economic agenda. The Conference Board reported a 7.2 point drop in consumer confidence this month, reaching a reading of 92.9—the lowest since January 2021. This decline, which began in December following the U.S. presidential election, mirrors the previous month’s drop and highlights the growing pessimism among consumers. The survey further revealed that not only are Americans anticipating higher inflation this year, but an increasing number also foresee an impending recession. This combination of slowing growth and rising inflation suggests a trend towards “stagflation,” an outlook that Federal Reserve officials share.
Expectations among Americans for future income, business prospects, and labor market conditions have sharply declined, as shown by a 9.6 point drop to 65.2—the lowest in 12 years. Meanwhile, the percentage of respondents anticipating a recession in the next year remained steady, matching a nine-month high. Trump’s contentious trade disputes, a central element of his economic strategy, have generated confusion and conflict. Recent actions include imposing 25% tariffs on Mexico and Canada, only to delay them amid business leader backlash, and threatening a 200% tariff on European alcohol in response to EU retaliation against U.S. metal tariffs.
These volatile trade maneuvers have created significant uncertainty for American consumers, businesses, and investors, complicating planning efforts. This unpredictability stokes fears of a stagflationary spiral. Stephen Miran, Chair of Trump’s Council of Economic Advisers, downplayed the dip in consumer confidence, attributing it to the influence of political views on economic perceptions. He emphasized that consumer confidence data is less indicative of economic health compared to hard data, such as job reports.
Sarah House, Senior Economist at Wells Fargo, acknowledged that while consumer surveys have shown volatility, it remains to be seen if this sentiment will impact hard economic data related to growth and labor markets. The Trump administration’s rapid policy shifts have also presented challenges for the Federal Reserve, which is responsible for managing borrowing costs. Besides tariffs, the administration is enacting mass deportations and deregulation efforts. Federal Reserve officials are maintaining a wait-and-see approach on interest rates as they assess the impact of Trump’s policies on the economy.
Fed Governor Adriana Kugler noted, “The Fed can react to new developments by holding at the current rate for some time as we closely monitor incoming data and the cumulative effects of new policies.” Fed Chair Jerome Powell and other officials prioritize the “net effect” of Trump’s policies on growth, employment, and inflation, which currently shows little change. However, there are already signs of economic weakness, with the Atlanta Fed forecasting a contraction in the economy this quarter, attributed largely to harsh January weather affecting consumer spending and industrial activity.
Nevertheless, the U.S. labor market remains a strong foundation for economic resilience, with unemployment at 4.1% in February as employers added 151,000 jobs. The Fed is also observing rising inflation expectations among Americans for the short and long term. After the Fed’s latest policy meeting, Powell noted that long-run inflation expectations are “mostly well anchored.” Current economic indicators do not suggest an urgent need for Fed intervention through rate cuts or hikes.
Atlanta Fed President Raphael Bostic commented, “I moved to one rate cut for this year mainly because I think we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target.” He added that the appropriate policy path may need to be adjusted accordingly.
Impact on Daily Life
For everyday Americans, the swirling economic uncertainties and shifting policies may translate into a more cautious approach to spending and financial planning. Concerns over potential stagflation—a mix of stagnant economic growth and rising inflation—could lead consumers to tighten their belts, impacting retail and service industries that rely on discretionary spending. As consumer confidence wanes, businesses may also hesitate to make significant investments or expand operations, which could affect job growth and wage increases.
The unpredictability surrounding trade policies and tariffs could have lasting implications on prices for goods and services. Consumers may see increased costs as companies pass along the expense of tariffs, affecting household budgets and overall purchasing power. Additionally, sectors heavily reliant on international trade, such as agriculture and manufacturing, might face disruptions, influencing employment opportunities and regional economies. As the Federal Reserve monitors these developments closely, the decisions they make will play a significant role in shaping the economic landscape and influencing both individual financial situations and broader market stability.
