In the wake of Donald Trump's presidential victory, many Americans began to adjust their spending habits in anticipation of import tariffs that would lead to rising prices. Amber Walliser, a resident of Ohio, exemplifies this trend. Shortly after the election, she invested $2,000 (£1,538) on household appliances, fearing that prices would soar due to new taxes on imports. However, this initial splurge has since been replaced with a cautious approach to spending. With concerns about job security and the potential for an economic downturn, Amber and her family are now focused on saving money and building their emergency fund.
Amber's situation reflects a broader sentiment across the United States as tariffs and other policy changes from the Trump administration contribute to market volatility, business uncertainty, and inflation worries. These factors will be crucial considerations for officials at the Federal Reserve during their upcoming interest rates meeting. The Fed typically adjusts interest rates to maintain a balance between economic growth and inflation control. Currently, analysts expect the Federal Reserve to keep interest rates steady, but opinions vary on future moves, particularly as tariffs may both elevate prices and hinder economic expansion.
Jay Bryson, chief economist at Wells Fargo, points out that the Fed's task has become increasingly complex. In a recent speech, Federal Reserve Chairman Jerome Powell noted that public sentiment surveys have not reliably predicted consumer spending. Despite positive economic indicators, Powell suggested that policymakers should wait and assess the broader implications of the White House's policies before making significant changes.
As uncertainty looms, American households are adapting their spending habits in real-time. Dave Gold, a finance professional from Wyoming, experienced a financial setback during a recent stock market downturn. In response, he outlined a strict budget and slashed his expenditures. By cancelling subscriptions and curbing online shopping, he has successfully halved his monthly expenses. "It's just really hard to plan and be confident about what next month looks like," Dave remarked, highlighting the pervasive sense of insecurity among consumers.
This cautious financial behavior isn't isolated. Retail sales have declined, with major corporations like Walmart and Delta Air Lines reporting reduced demand. Furthermore, job growth is slowing, and the stock market has reached its lowest point since September. A recent survey from the University of Michigan indicates that consumer sentiment regarding the job market has plummeted to its lowest level since the Great Recession, with long-term inflation expectations rising at the quickest rate since 1993. These indicators signal potential challenges for an economy where consumer spending comprises approximately two-thirds of total activity.
While Bryson acknowledges that consumers are not completely faltering, he warns of emerging "cracks" in the economy. He now estimates a one-in-three chance of a recession, up from one-in-five at the beginning of the year. "If consumers retrench...the entire economy is going to go down with it," he cautioned, emphasizing the interconnectedness of consumer behavior and economic health.
Despite the White House's assurances that short-term disruptions could lead to long-term economic benefits, public opinion indicates growing concern regarding Trump's economic policies. This sentiment is particularly strong among Democrats and independents but is increasingly felt by Republicans as well. Jim Frazer, a software engineer from Nebraska who did not support Trump, shares his unease over the administration's fluctuating policies, the declining stock market, and rising prices for essential goods.
In late 2022, Jim took proactive steps by purchasing a new phone and television, anticipating that these items would soon be affected by impending tariffs. However, as economic uncertainty continues, he has shifted his focus to saving. He and his wife have delayed plans to replace furniture and renovate their home. "I just feel like right now, we need that money squirrelled away in a safe spot," he explained, embodying the sentiment of many Americans who are bracing for potential economic turbulence.
As tariffs and economic policies evolve, American consumers face a challenging landscape that necessitates careful financial planning and prudent spending decisions.
