Key Points

  • Data released by the Conference Board on Tuesday, March 25, showed that the index measuring consumers' expectations for employment, personal income, and business conditions over the next six months fell sharply in March to its lowest level in 12 years, amid heightened concerns triggered by U.S. tariffs and trade policies.
  • The organization's Expectations Index fell 9.6 points month over month to 65.2, well below the 80 threshold that typically signals a recession. The Confidence Index, which measures consumers' views on current economic conditions, declined for the fourth consecutive month.
  • "Consumers' optimism about future income, which had remained strong over the past few months, has now largely disappeared, indicating that concerns about the economy and the labor market have begun to spill over into consumers' assessments of their personal situations," said Stephanie Guichard, Senior Economist for Global Indicators at the Conference Board, in a statement.

Deeper Analysis

Guichard noted that consumers' pessimism about the outlook for price pressures also deepened this month, with their expectations for inflation over the next 12 months rising to 6.2% from 5.8% in February. "Consumers remain concerned about high prices for key household necessities such as eggs, as well as the impact of tariffs," she said.

The Conference Board's data aligns with a University of Michigan survey, which showed that consumers' expectations for long-term inflation rose this month at the fastest pace since 1993, driven by concerns over a resurgence of price pressures stemming from tariffs and other Trump administration policies.

Federal Reserve Chair Jerome Powell, speaking after the central bank's two-day monetary policy meeting on March 19, downplayed consumers' growing pessimism about short-term inflation, noting that medium- and long-term inflation expectations remain "well anchored." Powell described the University of Michigan data as "an outlier compared with market-based indicators and other survey-based assessments of longer-term inflation." "When we talk about inflation expectations being well anchored, we're talking about longer-term inflation expectations, and those really haven't moved much," he said at a press conference.

At the same time, Powell acknowledged a recent rise in short-term inflation expectations. "We've seen that in both market-based and survey-based indicators, and survey respondents, whether consumers or businesses, have cited tariffs as a driving factor," he said.

Policymakers aim to bring inflation back to their 2% target. They closely monitor inflation expectations, worried that they could become a self-fulfilling prophecy. Like consumers, their expectations for short-term price pressures have also risen.

In the median of projections released on March 19, central bank officials expected their preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, which excludes volatile food and energy prices, to rise to 2.8% by the end of this year, 0.3 percentage points higher than their December forecast.

Federal Reserve Governor Adriana Kugler said on Tuesday, March 25, that progress in curbing inflation "has slowed since last summer," noting that rising goods prices are "evidence that inflation has accelerated in recent months." In her remarks, Kugler said the recent rise in short- and long-term inflation expectations "appears to be related to trade policy." "I am closely monitoring the acceleration in price increases and higher inflation expectations," she said. She reiterated her support for the central bank's March 19 decision to hold the federal funds rate in a range of 4.25% to 4.5%, adding, "I believe policy remains restrictive."

Like Powell, Kugler and the Conference Board both pointed to unusually high economic uncertainty. The Conference Board said open-ended responses in the survey "showed inflation remained a primary concern for consumers, with concerns about the impact of trade policies and tariffs particularly elevated," and noted that "references to economic and policy uncertainty were also more frequent than usual."