U.S. stock markets tumbled on Friday after new data revealed growing anxiety among American consumers that Donald Trump’s escalating trade war could fuel long-term inflation.
According to a University of Michigan survey, U.S. consumers now expect inflation to average 4.1% annually over the next five to ten years—marking the highest level of long-term inflation expectations since February 1993. In the short term, expectations are even more elevated, with prices predicted to rise by 5% over the next year.
The figures come as investors increasingly worry that persistent inflation could derail hopes of interest rate cuts and weigh on consumer spending. Heightened inflation expectations could prompt households to tighten their budgets in anticipation of future price pressures.
The market reacted sharply to the data. The S&P 500 fell 1.3%, the Nasdaq Composite dropped 2%, and the Dow Jones Industrial Average declined 1.4% following the release.
Joanne Hsu, director of the University of Michigan survey, noted: “Consumers continue to worry about the potential for pain amid ongoing economic policy developments. Notably, two-thirds of consumers expect unemployment to rise in the year ahead—the highest reading since 2009.”
Federal Reserve Chair Jerome Powell acknowledged last week that inflation had begun to rise “partly in response to tariffs,” cautioning that “there may be a delay in further progress over the course of this year.” However, he also described the Michigan survey results as “an outlier,” adding, “We don’t dismiss data that we don’t like. We force ourselves to look at it.”
The inflation fears were compounded by official figures released the same day, showing core inflation—which excludes volatile food and energy prices—rose more than expected in February. Core prices increased by 2.8% year-on-year, up from 2.6% in January.
