The University of Michigan's Surveys of Consumers reported that the consumer sentiment index dropped to 44.8 in May, down from a preliminary reading of 48.2 and significantly lower than the 49.8 recorded at the end of April. This decline marks the third consecutive month of falling sentiment, with current levels approaching the historical low seen in June 2022.
Joanne Hsu, Director of the Surveys of Consumers, noted that consumers are increasingly worried about inflation extending beyond fuel prices. Inflation expectations for the next year have risen to 4.8%, up from 4.7% last month, and significantly higher than the 3.4% recorded in February before the conflict escalated. Longer-term inflation expectations also increased to 3.9% from 3.5% in April.
The ongoing volatility in global markets reflects investor uncertainty regarding the duration of the war and its long-term impact on oil prices. Additionally, the yields on 30-year Treasury bonds have reached their highest levels since before the financial crisis, while the 10-year Treasury note yield has also surged to levels not seen in over a year.
The Federal Reserve's stance appears to be shifting, with officials indicating a reluctance to lower interest rates in light of persistent inflationary pressures. Fed Governor Christopher Waller expressed concern over rising inflation expectations for the medium term, highlighting the potential for prolonged economic challenges