US Consumer Feeling Weaker As FED Keeps Interest Rate High
The main FED interest rate has been at 5.50% since July last year, and they’re hesitating to lower it which is hurting the US consumer. Other central banks such as the SNB and the ECB have started to lower interest rates, however, they’re not in a hurry either, and neither is the FED, while expectations were that they would embark on a monetary easing policy.
The consumer reports from the US in recent months have shown increasing weakness, as prices get higher while financial conditions get tighter, especially credit/debit card loans and mortgages. Consumer sentiment is a key indicator of economic health, so lower sentiment can lead to reduced consumer spending in the following months, which in turn can slow economic growth.
June 2024 University of Michigan Preliminary Consumer Sentiment Report
UoM sentiment has taken a dive in 2024
Overall UoM Consumer Sentiment:
- Lower-than-Expected Sentiment: The preliminary consumer sentiment reading for June came in significantly lower than expected at 65.6 versus the forecasted 72.0. This drop indicates a decline in consumer confidence, which can have several economic implications.
- Current Conditions vs. Expectations: The index for current conditions fell sharply to 62.5 from 68.8, suggesting that consumers perceive their current economic situation as worsening. However, expectations for the future improved slightly to 67.6 from 66.5, indicating some optimism about future economic conditions despite current concerns.
UoM Inflation Expectations:
- 1-Year Inflation: The 1-year inflation expectation decreased slightly to 3.3% from 3.5%, suggesting that consumers expect inflation to moderate in the near term.
- 5-Year Inflation: The 5-year inflation expectation remained stable at 3.1%, indicating that long-term inflation expectations are anchored and consumers do not foresee significant inflationary pressures over the longer horizon.
Analysis and Market Implications
The lower-than-expected consumer sentiment reading did not affect the USD much, which was pushing higher in the second half of the week, but it could put downward pressure in the coming weeks/months, as it signals potential weakening in consumer spending, leading to softening overall economic activity in the US that’s already showing signs of weakness.
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