U.S. stocks plummet! Long-term inflation expectations in Michigan hit a 32-year high, consumer confidence reaches a more than two-year low

The final value of the University of Michigan's March consumer sentiment index, released on Friday, shows that due to tariff shocks, U.S. consumer confidence has hit a new low in over two years, and long-term inflation expectations have reached a 32-year high, exceeding previous preliminary data.

The final value of the University of Michigan's consumer sentiment index for March is 57, below the expected 57.9, with a preliminary value of 57.9. Among them, the final value of the current conditions index is 63.8, a six-month low, with an expectation of 63.5 and a preliminary value of 63.5; the final value of the expectations index is 52.6, with an expectation of 54.1 and a preliminary value of 54.2, a drop of 11.4 points from the February final value, marking the largest decline since 2021.

In terms of inflation expectations, which are of great concern to the market, the final value of the University of Michigan's one-year inflation expectation for March is 5%, higher than the expected 4.9% and the preliminary value of 4.9%; the final value of the five-year inflation expectation for March is 4.1%, the highest since February 1993, exceeding the expected 3.9% and the preliminary value of 3.9%.

Recent Michigan consumer surveys indicate that Americans' inflation expectations have broken through the range fluctuations seen in recent years. For a considerable time, the Michigan five-year inflation expectation fluctuated within a narrow range of 2.9%-3.1%. In June 2022, when U.S. inflation peaked in this cycle, the preliminary inflation expectation reached 3.3%, the highest since 2008. The latest long-term inflation expectations are significantly higher than the post-pandemic peak levels.

Regarding the surge in long-term inflation expectations from the University of Michigan, Federal Reserve Chairman Jerome Powell previously stated that this inflation expectation data is an outlier. However, this week several voting members expressed differing views, arguing that survey-based inflation expectation data should be closely monitored. A dovish voting member, the President of the Chicago Federal Reserve, stated that if market inflation expectations also rise, it would be a "major danger signal." However, it should be noted that the consumer inflation expectations surveyed by the Federal Reserve remain stable.

Tariffs and their potential impact on consumer prices could significantly influence the Federal Reserve's interest rate policy. Federal Reserve officials have indicated that they will not rush to further cut interest rates. The explosion of U.S. inflation expectations is a sign of loosening long-term inflation expectations; the Michigan inflation expectation data from June 2022 prompted the Federal Reserve to aggressively raise interest rates, after which inflation expectations fell, greatly alleviating concerns about them potentially spiraling out of control.

Joanne Hsu, Director of the University of Michigan Consumer Survey, stated:

Consumers continue to worry about the pain that may arise from ongoing economic policy developments. Notably, two-thirds of consumers expect the unemployment rate to rise in the coming year, the highest reading since 2009.

The report shows that expectations among various consumers regarding the U.S. labor market have significantly deteriorated, indicating that consumer spending may weaken in the coming months. Expectations among high-income consumers have also declined. Hsu stated, "This trend reveals a key vulnerability faced by consumers, as a strong labor market and income have been the main sources supporting consumer spending in recent years." From the details, there is a significant difference in inflation expectations among different party groups. Republicans expect prices to rise by 0.1% next year, while Democrats expect prices to rise by 6.5% next year, far exceeding the expectations during the peak of inflation a few years ago. Democrats believe that the outlook for the United States has never been this bad: worse than the global financial crisis, worse than the COVID-19 pandemic, worse than at any time in the past.

After the release of the University of Michigan survey data, U.S. stocks saw a significant increase in declines, with funds seeking safety:

The Nasdaq fell more than 1.2%, the S&P 500 index fell 0.9%, and the Dow Jones Industrial Average fell 360 points, a decline of more than 0.8%. Both the semiconductor index and the banking index fell more than 1%.

The yield on the 10-year U.S. Treasury bond fell more than 7.3 basis points, hitting a daily low below 4.29%; the yield on the 2-year U.S. Treasury bond fell more than 4.3 basis points, hitting a daily low of 3.9427%.

The U.S. dollar index maintained a decline of about 0.2%, stabilizing near the daily low of 104.106 points that occurred before the inflation expectation data was released. The dollar fell 0.5% against the yen, trading at 150.29.

Spot gold rose more than 0.9%, reaching a historical high and approaching $3,087.

Consumer confidence affects economic growth in the coming months. Pessimistic consumer sentiment can suppress spending levels, thereby impacting economic recovery, while optimistic consumer sentiment can contribute to future economic growth