Americans grow more optimistic on inflation despite highest tariffs in a century

By avagrace // 2025-07-22

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A survey by the University of Michigan shows one-year inflation projections dropping to 4.4 percent (from five percent in June) and five-year expectations falling to 3.6 percent – the lowest since early 2025 – signaling cautious optimism.
The Consumer Sentiment Index rose to 61.8 in July, its highest since February. Yet confidence stays below historical averages due to lingering concerns about trade policy and inflation.
Despite a 20 percent average tariff rate (the highest in 100 years), inflation remains subdued as lower service prices offset tariff-driven goods costs and consumers view the effects as temporary.
Falling inflation expectations may support a Fed rate cut, with markets anticipating a possible September reduction, though policymakers remain wary of trade-related risks.
Retail sales grew 0.6 percent in June, but consumers prioritize necessities over discretionary purchases, reflecting cautious optimism amid economic uncertainty.

Americans are growing cautiously optimistic about inflation and the economy even as they face the highest average tariff rates in 100 years, according to the results of a new University of Michigan (UMich) survey released July 18. The report shows inflation expectations falling to their lowest levels since early 2025, suggesting consumers believe the worst of price surges may be over – at least for now. But beneath the surface, lingering concerns remain about whether trade policies and government spending could reignite inflationary pressures. Preliminary results from the UMich Surveys of Consumers edition for July revealed a notable decline in inflation expectations. The one-year outlook dropped to 4.4 percent from five percent in June, while the five-year projection fell to 3.6 percent from four percent. These figures mark the lowest expectations since February 2025, effectively returning to pre-tariff levels. (Related: Federal Reserve pauses rate cuts, warns tariffs will drive inflation amid fragile economy.) This shift suggests Americans are beginning to believe that the worst of inflation may be behind them. However, economists warn that confidence remains fragile. Consumers still see a substantial risk that inflation could flare up again, particularly if trade policies remain volatile or government spending continues unchecked. Meanwhile, the Consumer Sentiment Index rose to 61.8 in July, up from 60.7 in June – its highest level since February. Assessments of current economic conditions improved to 66.8, while future expectations climbed to 58.6, both beating market forecasts. Yet despite this uptick, confidence remains well below historical averages. Americans are still wary of long-term economic stability, particularly when it comes to trade policy and inflation. Until they see sustained evidence that prices will stabilize, full economic optimism may remain out of reach.

Why tariffs haven't crushed consumer confidence yet

The U.S. currently faces a 20 percent average tariff rate, the highest in a century, yet inflation data show only modest price pressures. The Consumer Price Index (CPI) rose just 0.3 percent in June, while the Producer Price Index (PPI) held steady at zero percent. Import and export prices saw minor increases of 0.1 percent and 0.5 percent, respectively. Economists argue that while tariffs are raising the cost of goods, these increases are being offset by lower prices in non-trade services. Additionally, consumers appear to believe that tariff-driven inflation will be temporary rather than permanent – a key factor in preventing long-term economic pessimism. The Federal Reserve pays close attention to inflation expectations because they influence business pricing and wage negotiations. If consumers and businesses expect prices to keep rising, they adjust behavior accordingly, creating a self-fulfilling cycle of inflation. Recent data suggest the Fed may be gaining ground in its battle against inflation. The New York Fed's June Survey of Consumer Expectations showed one-year inflation projections dipping to three percent from 3.2 percent. Meanwhile, markets now anticipate a potential quarter-point rate cut in September, according to the CME FedWatch Tool. Despite economic uncertainty, retail spending showed resilience in June – rising 0.6 percent from May and 3.9 percent year-over-year. However, consumer habits are shifting: Americans are spending more on essentials while cutting back on discretionary purchases. This suggests that while confidence is improving, households remain cautious with their budgets. "Consumers are unlikely to regain their confidence in the economy unless they feel assured that inflation is unlikely to worsen – for example, if trade policy stabilizes for the foreseeable future," Joanne Hsu, UMich Surveys of Consumers director, wrote in the report. The latest data paint a cautiously optimistic picture: Inflation expectations are cooling, consumer sentiment is rising and spending remains steady despite high tariffs. But the economy is not out of the woods just yet. Watch this Fox News report about the Trump White House setting the record straight on tariffs and inflation. This video is from the NewsClips channel on Brighteon.com.

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Why tariffs haven't crushed consumer confidence yet

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