US consumer sentiment hits 2-year low as inflation fears hit 32-year high

US consumer sentiment has plunged to its lowest level in over two years. Inflation expectations have jumped the most since 1993. The University of Michigan’s preliminary March sentiment index sank to 57.9, down from 64.7 in February.

That’s the lowest reading since November 2022. Economists expected a smaller drop, making this decline worse than all forecasts in a Bloomberg survey.

Consumers now expect prices to climb at an annual rate of 3.9% over the next five to ten years, up 0.6 percentage points from February. That’s the highest level in over 30 years.

Short-term inflation expectations are also rising, with prices projected to jump 4.9% over the next year, up from 4.3% in February. This is the highest short-term forecast since 2022.

Tariffs fuel inflation fears

A major factor in the changing outlook is the expansion of President Donald Trump’s tariffs. Consumers across political lines are concerned that new import duties will drive up prices.

Inflation cooled last month, but the fear is that prolonged price increases could push households to cut discretionary spending. Survey respondents expressed deep uncertainty about the economy. Joanne Hsu, director of the University of Michigan survey, noted:

“Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences.”

The data shows that 48% of respondents mentioned tariffs in their interviews, an unusually high number. Hsu added:

“Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future.”

Households are also feeling the strain on personal finances. The survey shows that consumer expectations for their own financial situation hit the lowest level ever recorded.

The current conditions gauge dropped to 63.5, a six-month low. The expectations index hit its weakest point since July 2022. Political divisions are evident in the sentiment data.

Among Republicans, confidence fell 3 points. Among Democrats, it dropped nearly 10 points. Political independents saw a 5.4-point decline.

Trump’s economic strategy shakes markets

The consumer downturn comes as Trump leans into a strategy of economic pain to combat inflation. The administration has made it clear that lowering inflation and refinancing $9+ trillion in U.S. debt is a top priority, even at the cost of market stability.

Over $5 trillion has been wiped from U.S. stocks over the past 2 weeks as Trump’s policies take hold. The president made his position clear on March 6, outlining his belief that “short-term pain” is necessary. On March 9, Trump described the economic period as a “transition” that will “take a little time.”

Officials in Trump’s administration share his sentiment. Commerce Secretary Howard Lutnick told CNBC on March 6:

“The stock market is not driving outcomes for this admin. We’re focused on the real economy.”

Treasury Secretary Stephen Bessent followed up earlier today, saying,

“Not concerned about a little volatility.”

The change is also supported by the Department of Governmental Economic Strategy (D.O.G.E) and Elon Musk. Despite Tesla (TSLA) experiencing its 7th largest drop in history on March 10th, Elon remained calm, posting:

“It will be fine long-term.”

Recession as a tool to cut inflation

A key reason behind Trump’s aggressive approach is the looming $9.2 trillion refinancing challenge in 2025. The fastest way to lower interest rates before this refinancing occurs is a recession.

For years, the Federal Reserve attempted a soft landing, aiming to bring inflation down to 2% while keeping unemployment stable. But as inflation rebounded during Trump’s inauguration, the administration determined a new approach was necessary.

Government deficit numbers add to the urgency. The U.S. deficit hit $1.15 trillion in February, a record for the fiscal year to date. That’s $318 billion more than the same period in 2024, which is a 38% increase. The worsening deficit has heightened financial pressures for both D.O.G.E and the Trump administration.

Another piece of the puzzle is oil prices. Trump has focused on cutting oil costs as part of his inflation strategy. Since taking office, oil prices have dropped over 20%. Analysts at Citigroup project that if oil falls to $53 per barrel, inflation could drop to 2%.

But what could force oil prices lower? A recession. Trump’s tariff strategy is already slowing GDP growth. By applying tariffs to nearly all major U.S. trading partners, the administration is limiting economic expansion.

At the same time, the government is cutting jobs. Over the past 4.5 years, the U.S. added 2 million government jobs. Trump’s administration is working to reverse this trend. Reducing government jobs further increases the likelihood of an economic downturn.

The administration’s plan, whether intentional or not, is clear:

• Lower inflation
• Reduce oil prices
• Push interest rates down
• Cut deficit spending
• Shrink the U.S. trade deficit
• Eliminate government inefficiencies

All of these goals align with economic contraction.

February’s inflation data backs this strategy. Both headline and core CPI/PPI inflation dropped more than expected. With inflation cooling, Trump sees no reason to change course. The 10-year note yield has already dropped 50 basis points from recent highs.

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