The University of Michigan's March sentiment index dropped to 57.9, the lowest reading in over two years. Economists were taken aback by the sharp decline.
Causes of Declining Consumer Sentiment
A significant factor in the shift in outlook is the expansion of tariffs introduced by Donald Trump's administration. Consumers expect prices to climb at an annual rate of 3.9% over the next five to ten years, marking the highest level in over 30 years.
Trump's Economic Policy Strategy
The Trump administration is pursuing an 'economic pain' strategy to combat inflation. Over $5 trillion has been wiped from U.S. stock markets in the past two weeks.
Recession as a Tool to Reduce Inflation
A key reason behind the administration's approach is the need to refinance debt by 2025. Lowering inflation and interest rates through a recession is part of this strategy, along with reducing oil prices to potentially achieve 2% inflation targets.
The Trump administration's measures to control inflation are causing economic disruptions, reflected in the falling consumer confidence.
