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Consumer Confidence Plunges as Inflation Fears and Tariff Uncertainty Mount

Consumer confidence took a significant hit in February, marking its steepest monthly decline since August 2021.

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The Conference Board’s Consumer Confidence Index fell to 98.3, a sharp drop from January’s revised reading of 105, and well below the 102.5 expected by economists. This marks the third consecutive monthly decline, bringing the index to its lowest level in nearly two years.

The Present Situation Index, which gauges consumers' views on current business and labor market conditions, dipped slightly to 136.5 from January’s 139. Meanwhile, the Expectations Index, which measures consumer outlook on future income, business, and labor conditions, tumbled to 72.9 from 82. This is particularly concerning as a reading below 80 has historically signaled a potential recession within the next 12 months. February was the first time the index had dropped below that threshold since June 2024.

Tariff Concerns Fuel Inflation Anxiety
Rising inflation expectations are compounding economic fears. Consumers now anticipate 12-month inflation to reach 6%, up from 5.2% in January, as uncertainty around President Donald Trump’s tariff policies looms. With broad 25% tariffs on imports from Canada and Mexico set to take effect next month, and additional duties on steel, aluminum, autos, and pharmaceuticals in the pipeline, consumer anxiety over rising costs is intensifying.

“Mentions of trade and tariffs surged to levels unseen since 2019,” noted Stephanie Guichard, senior economist at the Conference Board. “Concerns over the current administration’s policies dominated the responses, highlighting the weight tariffs are having on consumer sentiment.”

Wall Street Reacts to Economic Uncertainty
The impact of declining consumer confidence rippled through financial markets, triggering a sell-off on Wall Street. The tech-heavy Nasdaq dropped 2%, dragged down by declines in major players like Meta, Amazon (AMZN), Nvidia (NVDA), Alphabet (GOOG), and Microsoft (MSFT). The S&P 500 and Dow Jones also saw declines, while Bitcoin fell below $90,000 for the first time since November, further rattling investors.

Bond markets reacted swiftly, with Treasury yields plunging to their lowest levels of the year as investors increased bets on Federal Reserve interest rate cuts. The yield on the 10-year Treasury note fell to 4.3%, as traders anticipated the economic slowdown could push the Fed to ease monetary policy sooner than expected.

Outlook: A Fragile Economic Landscape
While consumer sentiment is weakening, the broader economic impact remains uncertain. Some economists argue that while declining confidence is concerning, it may not immediately translate into weaker economic growth. However, with inflation expectations rising and tariffs adding pressure, the outlook is clouded with uncertainty.

Eugenio Aleman, chief economist at Raymond James, cautioned that the sharp drop in consumer sentiment should serve as a “wake-up call” for policymakers. “The combination of rising inflation expectations and recession fears suggests we may be entering a period of substantially more uncertainty for the U.S. economy,” he said.

As the Trump administration weighs its response and the Federal Reserve evaluates its next move, markets and consumers alike will be watching closely for signs of stabilization—or further turbulence ahead.


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