Consumer sentiment is falling back this month, down 2.1 points from May to a lower-than-expected 97.9. In a very important reading in this report and one that will raise the pitch of the rate-cut debate at next week’s FOMC is a sharp fall in long-term inflation expectations, at 2.2 percent for a giant 4 tenths decline from May in the 5-year outlook and the lowest reading in 40 years of available data on this question. The year-ahead reading for inflation expectations is down 3 tenths this month to 2.6 percent.

Tariff uncertainty, whether over Mexico but especially over China, is behind the decline in sentiment according to the text of the report. Weakness this month is centered in expectations which are down nearly 5 points to 88.6 to offset a 2.5 point gain for current conditions which are at 112.5.

But sentiment is steady enough in contrast to inflation expectations, a factor that Jerome Powell repeatedly points to as the fundamental underpinning for inflation itself and a major factor for monetary policy.

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