Washington
CNN
–
As President Donald Trump continues his sweeping economic agenda, America’s economic mood continues to deteriorate.
Consumer confidence slipped 7.2 points this month into a 92.9 reading, the conference committee said in its latest survey on Tuesday, reaching its lowest level since January 2021 and extending the decline that began in December after the US presidential election. The March decline is similar to the February decline, highlighting an increase in pessimism among US consumers.
Not only do Americans expect higher inflation this year, but many of them predict that the economy will fall into a recession, according to a study by the Congress Committee. The toxic combination of weakening growth and accelerated inflation is similar to “stagflation,” with Federal Reserve officials thinking the US economy is heading in that direction.
Americans’ expectations for “income, business and labor market conditions” next year have dropped sharply this month, according to a survey, which saw a 9.6-point decline of 65.2-point, to its lowest level in 2012. Meanwhile, the percentage of respondents hoping for a recession over the next 12 months remained stable at a nine-month high in March.
Trump’s trade, an important tenet of his economic agenda, was both embarrassing and controversial. These obligations were soon delayed after complaints from business leaders after imposing a 25% tariff on Mexico and Canada earlier this month. After that, after the European Union retaliated on Trump’s metal tariffs, the president continued to raise his ante by threatening a 200% tariff on European alcohol.
And future tariffs aimed at matching what they impose on the US on foreign countries — so-called mutual tariffs scheduled for April 2nd — could be debilitating.
Various research shows that the enthusiastic interactions spark high levels of uncertainty among American consumers, businesses and investors, making it difficult to plan ahead. They also fear that the economy may be drinking barrels towards the stag.
Stephen Milan, chairman of Trump’s Economic Advisory Council, said he has no interest in declining consumer confidence. “People often have their political views influence their economic views, which tend to manifest in confidence data,” Milan said in an interview with CNBC on Tuesday.
In his view, soft data such as consumer trust surveys speak less of the state of the economy compared to hard data such as job reports.
Sarahaus, a senior economist at Wells Fargo, said soft data could appear in hard data, but that’s not yet seen.
“Obviously there has been some wobble in soft data, especially consumer research, but for that to be a concern, there is a need for a pass-through to hard data from a growth and labor market perspective,” she told CNN.
The Trump administration’s rapid fire policy change is also baffling for the Fed, who is tasked with managing borrowing costs. In addition to tariffs, the administration is also implementing massive deportations and novel regulations.
Central bankers have recently said they are taking a waiting approach at interest rates, and are stabilizing them as they are waiting for some clarity on how the US economy is responding to Trump’s policies.
“The (Fed) can respond to new developments by retaining at current rates to closely monitor the cumulative impact of incoming data and new policies,” Gov. Adriana Kugler said Tuesday at an event hosted by the US Hispanic Chamber of Commerce.
Most Fed officials, including Federal Reserve Chair Jerome Powell, say what matters is the “net effect” of Trump’s policies on so far on scarce growth, employment and inflation.
But even before Trump’s policies showed economic change, there were already some signs of economic debilitation. Real-time economic growth forecasts by the Atlanta federal government show that the economy was signed this quarter and has slowed sharply since the second half of last year. It is largely due to the unusually harsh cold effects on consumer spending and industrial activities in January.
However, the American labor market remains a robust pillar of strength for the US economy and should do well for spending. In February, the unemployment rate was down 4.1% as employers added a solid 151,000 jobs.
The Fed also gets signalling from recent stages in Americans’ predictions of inflation in the short and long term. After the Fed’s latest monetary policy meeting earlier this month, Powell said long-term inflation expectations remain “mostly fixed.”
Overall, economic data now suggests that the economy does not urgently need easing from the Fed in the form of interest rate cuts, or that rate hiking is necessary to curb inflation.
“I moved to one (this year’s rate cuts) mainly because I think that inflation is very bumpy and will move dramatically and clearly towards the 2% target,” Atlanta Federal President Rafael Boschtic told Bloomberg on Monday. “It’s being pushed back, so I think we’ll have to push back the right path of the policy as well.”
