Consumer sentiment took a sharp hit in February as Democrats and independents reacted negatively to Trump’s tariff policies, fearing they will drive prices higher. Republicans remained largely unmoved, highlighting a deepening divide in economic perceptions.
The University of Michigan’s index plummeted nearly 10 percent to 64.7, with long-term inflation expectations climbing to 3.5 percent—the highest since 1995—and short-term expectations jumping to 4.3 percent. The most significant shifts came from Democrats and independents, who increasingly expect tariffs to fuel price hikes. Republican expectations, by contrast, remained steady.
The consumer sentiment index for Democrats has fallen sharply, dropping from 91.4 in October to 51.3 in February. Much of this has been driven by the expectations gauge, which has fallen from 93.1 in October to 36.8 in February.
Among Republicans, sentiment has climbed from 53.6 in October to 86.7 in February and January. The expectations measure has soared from 61.4 to 106.6.
The media’s relentless framing of tariffs as inflationary has likely exacerbated these fears. News coverage has consistently claimed that tariffs are likely to lead to price hikes, despite uncertainty over the actual economic impact. Inflation did not rise when Trump imposed tariffs in his first term.
While tariffs can raise costs of some goods, they aren’t typically inflationary in a broad sense. Factors like currency shifts and supply chain adjustments complicate the picture. Often, the cost of a tariff is born by merchants rather than passed on to customers. Yet, the inflation narrative has cemented itself among Democratic and some independent consumers, fueling expectations of higher prices.
The fallout may extend to monetary policy. The Federal Reserve has signaled caution on rate cuts, and surging inflation expectations could justify keeping rates steady. If consumers rush to buy before perceived price hikes, inflation fears could become self-fulfilling.
Beyond sentiment, broader economic indicators show mixed signals. Business activity slowed in February, particularly in the services sector, according to a survey from S&P Global, while existing-home sales fell for the first time since September, squeezed by high mortgage rates and home prices. Retail sales were disappointing in January. More than half of consumers surveyed now expect unemployment to rise—the highest share since 2020—although that might simply reflect the fact that unemployment is currently extremely low at four percent.
The data underscore how politics increasingly shapes economic perception. Democrats and independents, swayed by tariff fears, see a troubled economy ahead, while Republicans remain confident that good economic times lie ahead.
Read the full article here