Rising Inflation Expectations Spark Concerns Over Tariffs and Consumer Confidence

U.S. consumers are bracing for higher prices over the next 12 months, according to the University of Michigan’s latest survey. One-year inflation expectations jumped to 3.3% in January, up significantly from 2.8% in December. This is the steepest increase since May and pushes the short-term outlook above the 2.3%-3.0% range seen in the two years preceding the COVID-19 pandemic. Long-run inflation expectations also climbed to 3.3%, a peak last witnessed in 2008.

Analysts suggest these figures likely reflect the market’s concern that President-elect Donald Trump’s proposed tariffs on imports could drive up costs for everyday goods. These forecasts are supported by labor market data pointing toward fewer interest rate cuts by the Federal Reserve this year. The central bank, which has held its benchmark interest rate within the 4.25%-4.50% range, only anticipates two quarter-point rate reductions in 2023 and has recently admitted inflation is not adequately under control.

Source: University of Michigan. 

Economists say the heightened consumer focus on rising prices has weighed on sentiment, despite confidence initially leaping after Trump’s election victory. In the University of Michigan’s early January reading, overall consumer sentiment slipped to 73.2 from December’s 74.0. Other data, like the lower-than-expected unemployment rate reported for December, also suggests the economy may not be cooling enough to handle inflationary pressures created in recent years.

These developments highlight how quickly consumer confidence can erode, prompting many to explore alternative assets for greater financial security. Historically, options like precious metals have served as hedges against inflation, particularly when government policies or tariffs threaten to drive prices higher. While the Federal Reserve has aggressively adjusted its policy stance—making several modest rate moves over the past two years—some remain skeptical about whether ongoing central bank intervention will genuinely stabilize the economy or inadvertently spark fresh inflationary pressures and risk a recession.