America’s economic mood continues to deteriorate as President Donald Trump implements his sweeping economic agenda. According to the Conference Board, consumer confidence has plummeted by 7.2 points this month, resulting in a reading of 92.9. This marks the lowest level since January 2021 and extends a decline that began in December following the US presidential election. The decline in March mirrors February’s, highlighting a growing sense of pessimism among American consumers.
Americans are not only bracing for higher inflation this year, but there is also an increasing number anticipating a recession. The Conference Board survey indicates that this troubling combination of weakening growth and rising inflation is reminiscent of "stagflation." Federal Reserve officials are also recognizing this trend, as expectations for income, business, and labor market conditions have dropped sharply, declining by 9.6 points to 65.2—the lowest level in 12 years.
Furthermore, the proportion of survey respondents expecting a recession within the next 12 months has remained steady at a nine-month high. Trump's ongoing trade disputes with foreign nations, a central element of his economic strategy, have contributed to this uncertainty. Earlier this month, after imposing a 25% tariff on Mexico and Canada, the administration delayed these duties for another month in response to business leaders' complaints. Additionally, after the European Union retaliated against Trump's metal tariffs, he intensified his stance by threatening a colossal 200% tariff on European alcohol.
Upcoming tariffs aimed at aligning with those imposed by foreign nations—known as reciprocal tariffs, set for April 2—may also be softened. This back-and-forth has resulted in high levels of uncertainty among American consumers, businesses, and investors, complicating future planning, as indicated by various surveys. This environment is fueling fears that the economy may be on a path toward stagflation.
Stephen Miran, chair of Trump’s Council of Economic Advisers, expressed a lack of concern regarding the decline in consumer confidence, stating, “Folks often let their political views influence their views of the economy, which tends to manifest in the confidence data.” In a recent CNBC interview, Miran argued that soft data, such as consumer confidence surveys, are less indicative of the economy's state compared to hard data like jobs reports, which suggest a somewhat improved outlook.
Sarah House, a senior economist at Wells Fargo, acknowledged that soft data can eventually influence hard data but noted that the extent remains to be seen. “We’ve seen some wobbles in the soft data, particularly the consumer surveys, but for it to become concerning, there has to be some pass-through into the hard data, in terms of growth and the labor market,” she stated in an interview with CNN.
The Trump administration’s rapid policy changes have also created perplexity for the Federal Reserve, which is responsible for managing borrowing costs. In addition to tariffs, the administration is engaging in mass deportations and slashing regulations. Recently, central bankers have indicated they are taking a wait-and-see approach with interest rates, opting to hold them steady as they await clarity on how the US economy is responding to Trump’s policies.
“The Fed can react to new developments by holding at the current rate for some time as we closely monitor incoming data and the cumulative effects of new policies,” stated Fed Governor Adriana Kugler during an event organized by the US Hispanic Chamber of Commerce.
Most Federal Reserve officials, including Chair Jerome Powell, have emphasized that the "net effect" of Trump’s policies on growth, hiring, and inflation is what truly matters, although evidence of these effects remains scant. There are already indications of economic weakness, with a real-time forecast from the Atlanta Fed projecting a contraction in the current quarter, primarily due to the adverse effects of severe cold weather in January on consumer spending and industrial activity.
However, America’s labor market continues to be a robust pillar of strength for the economy, which bodes well for consumer spending. As of February, the unemployment rate was at a low 4.1%, with employers adding a solid 151,000 jobs. The Fed is also receiving concerning signals from the recent increase in Americans’ inflation expectations, both short-term and long-term.
After the latest monetary policy meeting earlier this month, Powell noted that long-run inflation expectations remain “mostly well anchored.” Current economic data suggests that there is no urgent need for the Fed to implement rate cuts, nor is there a necessity for rate hikes to combat inflation. “I moved to one rate cut for this year mainly because I think we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target,” Atlanta Fed President Raphael Bostic commented to Bloomberg on Monday. “Since that’s being pushed back, I think the appropriate path for policy is also going to have to be pushed back.”
