Consumer Confidence Falls to 12-Year Low on Inflation, Job Fears

Consumer confidence slumped in September to a 12-year low, the Conference Board said Tuesday, with the index falling 6.7 points to 81.8 from 88.6 in August. Rising fuel prices, higher borrowing costs and anxiety over weak hiring drove the decline.

Consumers' median expectations for inflation over the next 12 months rose 0.3 percentage points to 5.1%, the Conference Board reported. The share of households anticipating higher interest rates over the next year surged 5.2 percentage points to 68.4%.

"Consumers are more disgruntled and squeezed in this economy than they felt during the 2020 pandemic," Heather Long, chief economist at Navy Federal Credit Union, said in a statement. "The Main Street economy is under strain. High gas prices, spiking borrowing costs and low hiring are hitting middle-class households hard."

Conference Board Chief Economist Dana Peterson said consumer views on inflation are especially gloomy, citing write-in responses to the survey. "References to prices, the high cost of goods and services, and oil and gas prices in particular, rose to new heights, reflecting September's surge in fuel costs," she said.

The Conference Board findings tracked separate results from the University of Michigan released Friday. Consumer sentiment fell to a four-month low, and views of personal finances slumped about 10% amid mounting worries about persistent price pressures, the university said. Concerns about high fuel prices and the re-flaring of U.S. trade disputes eroded household assessments of short-term business conditions. Expectations for inflation rose in both the short and long term.

The data landed as Federal Reserve officials signaled patience on further rate moves. New York Fed President John Williams said Tuesday he saw no pressing need for the central bank to follow its quarter-point increase in the main interest rate this month with another at the scheduled Oct. 27-28 meeting.

"With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information," Williams said in a speech. "The accumulation of more data should provide greater clarity on the underlying trends in the economy and the associated risks to achieving our goals — and thereby the appropriate setting of monetary policy."

Williams, who serves as vice chair of the Federal Open Market Committee, predicted inflation will end 2026 at 3.5%, slow to just above 2% next year and reach the Fed's 2% target in 2028. He expects unemployment to edge down from 4.1% to 4% during the coming year. Slowing inflation is the central bank's No. 1 priority, he said, while noting that "the overall economy is on a solid footing."

Following Williams's speech and the confidence survey release, traders in interest rate futures cut the odds of a rate increase on Oct. 28 to 47% from 71% on Monday, according to CME Group's FedWatch tool.

Economists share the cautious outlook. The National Association for Business Economics found in a survey before the Fed's September meeting that 49% of its members believed monetary policy is too stimulative — a jump of 38 percentage points from a similar survey in February. Nearly 95% of NABE members do not expect the Fed to curb inflation to 2% before the second half of next year at the earliest.

For marketers and retailers, the message is stark: with inflation expectations at 5.1%, borrowing-cost fears at 68.4% and confidence at its weakest point in 12 years, middle-class households show no near-term sign of loosening their grip on spending.