March 29, 2025 – Consumer sentiment in the United States has deteriorated significantly, with the latest University of Michigan Survey of Consumers indicating a sharper decline than anticipated in March. The survey, released on Friday, revealed that mounting concerns over inflation and the broader economic outlook are weighing heavily on consumers.

Steeper Decline in Consumer Sentiment

The final reading for the University of Michigan’s Consumer Sentiment Index for March stood at 57.0, marking a substantial 11.9% decline from February and a 28.2% drop compared to the same period in 2024. Economists surveyed by Dow Jones had expected the index to remain slightly higher at 57.9, reflecting the mid-month preliminary reading.

This is the third consecutive month that consumer sentiment has fallen, signaling growing unease about economic conditions among American households. The survey director, Joanne Hsu, highlighted that the decline in sentiment was widespread, cutting across party lines and income groups.

“Consumers continue to worry about the potential for pain amid ongoing economic policy developments,” Hsu stated, underscoring that inflation fears and uncertainties around the future of interest rates are adding to household anxieties.

Consumer Expectations Drop Dramatically

A key component of the survey, the Index of Consumer Expectations, fell to 52.6 in March, representing a steep 17.8% decline from February and a 32% decrease compared to March 2024. This index measures consumers’ expectations regarding future economic conditions and typically reflects their outlook on personal finances, business conditions, and employment opportunities.

The sharp drop in consumer expectations indicates that households are bracing for further economic challenges in the coming months, with inflation emerging as the primary concern.

Inflation Concerns Dominate Consumer Worries

Rising inflation remains at the forefront of consumer concerns. According to the survey, respondents expect inflation to average 5% over the next year, marking an increase of 0.1 percentage points from the preliminary mid-month reading. This also reflects a 0.7 percentage point rise compared to the inflation expectations recorded in February.

More significantly, the long-term inflation outlook—over a five-year period—has now risen to 4.1%, the first time the survey has recorded a reading above 4% since February 1993. Such a sustained rise in inflation expectations suggests that consumers are increasingly anticipating prolonged price pressures across various sectors of the economy.

Potential Impact of Tariff Policies on Inflation

Economists have expressed growing concerns that President Donald Trump’s proposed tariff policies could further fuel inflation, potentially undermining the Federal Reserve’s ability to implement additional interest rate cuts. Tariffs on imported goods typically raise prices for consumers, and if implemented, they could intensify inflationary pressures at a time when households are already grappling with rising costs.

“The concern is that new tariffs could add another layer of inflation, making it difficult for the Fed to reduce rates,” said an economic analyst. “This would place additional strain on consumers and could slow down economic growth.”

Core Inflation Rises to 2.8%, Highest Since Early 2024

On the same day that the University of Michigan released its survey results, the Commerce Department reported that core inflation—excluding volatile food and energy prices—rose to 2.8% in February. This increase followed a 0.4% monthly gain, marking the largest jump since January 2024.

The persistent rise in core inflation underscores the challenges faced by the Federal Reserve in balancing efforts to control inflation while maintaining economic stability. Higher inflation rates could prompt the Fed to delay or even halt anticipated interest rate cuts, leaving consumers facing continued price pressures.

Concerns Over the Labor Market Intensify

In addition to inflation fears, the survey also indicated that consumer expectations regarding the labor market have deteriorated. The proportion of consumers anticipating a rise in the unemployment rate is now at its highest level since 2009. This suggests that households are becoming increasingly pessimistic about job security and future employment prospects, adding another layer of anxiety to the already fragile economic sentiment.

Market Reaction and Economic Implications

The negative consumer sentiment data had an immediate impact on financial markets. Following the release of the University of Michigan’s survey, the Dow Jones Industrial Average plummeted by more than 500 points as investors reacted to the concerning economic indicators. The sell-off reflected broader worries about slowing economic growth, persistent inflation, and uncertainty over future monetary policy.

A Complex Economic Landscape for Policymakers

The worsening consumer sentiment presents a complex challenge for policymakers, who must balance the need to address inflation while maintaining economic growth and stability. The Federal Reserve faces increasing pressure to carefully navigate these economic headwinds, as inflation expectations become more deeply entrenched in consumer behavior.

Moreover, the potential imposition of tariffs could exacerbate the situation by driving up prices and making it even more difficult for the Fed to control inflation without triggering a broader economic slowdown.

Outlook: Uncertain Path Ahead

As inflation concerns dominate the economic landscape, consumer sentiment is likely to remain subdued in the coming months. The uncertainty surrounding economic policies, including tariff measures and the Fed’s response to rising inflation, continues to cast a shadow over household confidence.

While policymakers and economists grapple with these challenges, consumers are bracing for continued financial strain, reflecting the broader anxieties about what lies ahead for the U.S. economy.