The Federal Reserve's Dilemma Amid Rising Inflation | Episode 146 | 06-14-24

Is consumer confidence crumbling beneath the weight of inflation? This week on "Markets with Megan," we uncover the surprising findings from the latest University of Michigan Consumer Sentiment Survey for June. The sentiment index has taken a nosedive, hitting a seven-month low, and we’re here to explore why. As we break down the numbers, learn how current economic conditions are the bleakest they've been since December 2022, and future expectations have plummeted to a six-month low. We also shed light on the unsettling rise in inflation expectations, and what this could mean for the broader economy.

Find out why higher prices and lower incomes are squeezing households and straining consumer spending, despite some optimistic inflation reports. Essential expenses, such as insurance services, remain stubbornly high, overshadowing any wage growth. We discuss the potential economic repercussions and the challenges the Federal Reserve faces in achieving a balanced economic recovery. Don’t miss your chance to understand these crucial economic indicators and their impact on the markets. J

Consumers are definitely feeling the inflation pinch, as we saw this morning with the University of Michigan Consumer Sentiment Survey for June. This is Friday, june 14th, and your regular segment of Markets with Megan. This morning we received the preliminary consumer confidence report from the University of Michigan. The way that this is reported is it comes out to give first part of the month, it comes out to give the consumer confidence for the first half of the month and then we'll get a revision on this report. But let's dig into what happened and why the equity markets are a bit off today.

On this, the preliminary reading was a big miss. They were expecting that we would see a bit of an uptick in consumer confidence. Instead we got a pretty big deterioration across all the different metrics that we look at. So the headline sentiment index was down the lowest we've seen in seven months. When you look at the sentiment on current economic conditions, that was the lowest since December of 2022. And then when you look at the sentiment on future expectations, that was the lowest in about six months. They also survey inflation expectations from consumers. Again, this was a miss. Inflation expectations on the one-year time frame are a bit higher than was anticipated at 3.3%. And then the five to 10-year expectation was also a bit higher, at 3.1%, and that's the highest that we've seen in seven months. The reason why they survey consumers and why we look at inflation expectations how consumers see it is because if consumers think that prices are going to be higher in the future, that can actually exacerbate inflation, because they'll go out and spend now and then you're just driving prices higher and higher. It becomes a vicious circle. So this is something the Fed will look at. This is something that we like to look at as well.

Now, why did confidence deteriorate? They go through and ask a lot of questions and, to sum it up, basically the majority of households feel much worse about their household finances than they did a year ago and it's driven by the fact that there's higher prices and actually lower income. So if you have higher prices and you have less discretionary income, this is not a necessary economic friendly report. We got some good inflation reports this week that it is trending lower, but consumers really aren't feeling it, and the reason of that being is the reports that we saw this week. If you look at things that are non-discretionary spending so things that we have to purchase insurance services these are things that are not going down and still running well above wages, so this is a concern that consumers are feeling. We think this is going to continue to put a strain on consumer spending. This is why we've been a little bit cautious about the economic environment this year, because A the Fed can't cut rates as fast as everyone had expected. Inflation is improving, but it's not improving as fast as I think some had expected, so this is a threat that we see to this perfect soft landing scenario that people have for the economy. That's all we have this week. We'll be back next week with some more economic data and market comments, and if you have any questions or comments, please feel free to reach out to podcasts at Verdence. com. Have a great weekend, thank you.