Consumer sentiment falls as Americans anticipate tariff-induced inflation
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Americans’ confidence inthe economy has plummeted in recent weeks, new data shows, with business leaders warning that a barrage of new tariffs could add to inflation and slow growth.
A widely followed survey from the University of Michigan found that consumers’ expectations for the next year’s inflation jumped to 6.7%, the highest reading since 1981. It’s the fourth consecutive month that consumer sentiment has worsened, as people across demographics say they believe unemployment and inflation will get substantially worse.
“The Trump trade war is terrifying consumers who cannot make up their mind between what is more likely, a recession or an inflation outbreak,” Chris Rupkey, chief economist at research firm Fwdbonds, wrote in a note to clients. “The economic outlook looks increasingly grim.”
The U.S.-China trade war could mean the average U.S. household will face a loss of $4,700 at last year’s price levels when accounting for Trump’s tariffs, which will also cut U.S. gross domestic product by around 1.1%, according to an April 10 estimate from the Budget Lab at Yale University.
Grace Zwemmer, associate economist at Oxford Economics, wrote in a Friday research note that fully implementing the tariffs that were paused Wednesday would push the United States into a recession. Even at the current levels, tariffs can be expected to add as much as 4.5% to the U.S. inflation rate, Zwemmer wrote.
While the U.S. stock market was relatively calm Friday compared to recent days, other financial indicators raised alarm for the health of the U.S. financial system.
A sell-off in government bonds resumed as the yield on the 10-year U.S. Treasury bond climbed above 4.5% late morning, meaning prices fell. Treasury bonds are usually seen as a safe haven in times of economic turmoil, but analysts say a shortage of cash in the market is now driving global investors to cash out bonds. The dollar continued a months-long decline, and gold surged to its highest level in more than 40 years.
Corporate leaders in the United States have said they are prepared for an economic slowdown if trade tensions continue.
“I think we’re very close, if not in, a recession now,” BlackRock CEO Larry Fink told CNBC’s “Squawk on the Street” television show Friday.
The investment firm’s conversations with clients have been dominated by uncertainty and anxiety about the future of the economy, Fink said in an earnings release Friday.
Stocks were more subdued Friday after several days of sharp swings, U.S. stock markets were subdued Friday as China signaled that it wouldn’t increase tariffs on U.S. goods beyond hiking customs duties to 125%. The S&P 500, Dow Jones Industrial Average and Nasdaq composite index rose by less than 1% by early afternoon and trading volumes were the lightest in several days after China’s assurance that it would ignore any further U.S. efforts to “play the tariff numbers game.”
Further increases “no longer have any economic significance” because the current levels make U.S. exports to China not financially viable, China’s State Council said in a statement, adding that imposing higher tariffs would make the United States a joke.The new Chinese tariffs take effect Saturday.
The Chinese action comes at the end of a volatile week for markets, as traders reacted to whipsawing tariff policies.The S&P 500 posted its biggest one-day jump since 2008 on Wednesday, but saw much of those gains erased by midday Thursday.
China announced its latest tariff increase after most Asian markets closed. Ahead of the announcement, Hong Kong’s Hang Seng Index and China’s Shanghai composite index ended the day slightly higher. Taiwan’s bourse logged a 2.5% gain. Japan’s Nikkei 225 lost almost 3%.
Japanese Prime Minister Shigeru Ishiba said Friday that Tokyo would try to address U.S. tariffs affecting the auto and steel industries, while South Korean Finance Minister Choi Sang-mok said the government would provide $6.2 billion in assistance to businesses exporting to the United States.
Taiwanese President Lai Ching-te wrote in an op-ed this week that Taipei would seek to buy additional U.S. arms and expand investments in the United States.
Wells Fargo supports the Trumpadministration’s willingness to look at fair trade barriers, but there are “risks associated with such significant actions,” chief executive Charlie Scharf said in a statement accompanying the company’s first-quarter earnings report Friday.
“Timely resolution which benefits the U.S. would be good for businesses, consumers and the markets,” he said.
The economy faces considerable turbulence, JPMorgan Chase CEO Jamie Dimon said as his company also reported its quarterly results.U.S.efforts to change tax policy and deregulate could help the economy, Dimon said, but “tariffs and ‘trade wars,’ ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility” pose potential risks.
“The China issue is a major issue,” he said in a call with analysts Friday, and “a significant change we’ve never seen in our lives.”
But keeping “the world safe and free for democracy” matters more than short-term economic results, Dimon said. “I really almost don’t care fundamentally about what the economy does next,” he said.