US consumer sentiment edges down to 48.0, near May record low

The reading is the weakest since the record low of 44.8 hit in May, shortly after the outbreak of the Iran war. Joanne Hsu, director of the Surveys of Consumers, said purchasing power remains the dominant concern for households, noting sentiment now sits 10% below last year’s level and 15% under February, before the conflict began.

The decline was steepest among political independents, whose confidence fell to 42.4 from 47.7 a month earlier, close to the all-time low of 40.6 reached in May. Sentiment among Democrats and Republicans, by contrast, improved slightly. Across all groups, more respondents cited high prices as a strain on their finances than at the start of the year, with the sharpest rise among Republicans.

Inflation expectations remain elevated. The one-year outlook ticked up to 4.7% from 4.6% in September, well above the 3.4% recorded in February before the war. Five-year expectations rose to 3.5% from 3.4%. Hsu warned that persistently high inflation expectations could complicate the Federal Reserve’s effort to bring inflation back to its 2% target, adding that resilient spending may partly reflect consumers buying ahead of expected price increases.

The weak survey lines up with separate polling showing declining public approval of the economy’s management under President Donald Trump, ahead of the November 3 midterm elections.

Fed policymakers meet next week and are widely expected to hold the policy rate at 3.75%-4.00%, having raised it by a quarter point in September, even after recent inflation readings came in above expectations.

Why it matters for markets: Weak consumer sentiment combined with sticky inflation expectations complicates the Fed’s rate path, which can influence the US dollar, Treasury yields and risk appetite in US stock indices such as the S&P 500 and Nasdaq 100.

Source: Economic Times Markets