Consumer sentiment fell this month as the Federal Reserve continues to raise interest rates to battle inflation, according to the University of Michigan Surveys of Consumers.
The index for consumer sentiment fell 5 percent to 63.4 from 67 in February but remains 7 percent higher than the year-ago mark of 59.4. The index for current economic conditions dropped 6.1 percent to 66.4 this month from 70.7 in February, and the index tracking consumer expectations fell by nearly 5 percent to 61.5.
Year-ahead inflation expectations fell to 3.8 percent in March from 4.1 percent in February, the lowest reading since April 2021, even as expectations remain above the 2.3 percent to 3 percent range in the two years before the pandemic. Long-term inflation expectations fell to 2.8 percent, below the 2.9 percent to 3.1 percent range for only the second time in the last 20 months. Inflation expectations also remain elevated compared to the 2.2 percent to 2.6 percent range in the two years before the pandemic.
“With ongoing turbulence in the financial sector and uncertainty over the Fed’s possible policy response, inflation expectations are likely to be volatile in the months ahead,” said Surveys of Consumers Director Joanne Hsu.
According to the report, the drop occurred prior to the March 10 and March 12 failures of Silicon Valley Bank and Signature Bank, respectively. Hsu attributed the drop to rising interest rates as the Federal Reserve continues to battle inflation. On March 22, the Federal Reserve Open Market Committee raised its Federal Funds rate by another 0.25 percent, bringing the benchmark federal funds rate to a range of 4.75 percent to 5 percent.
“Sentiment declines were concentrated among lower-income, less-educated and younger consumers as well as consumers with the top tercile of stock holdings,” Hsu said.