Trade Tensions and Fed Cut Sent Consumer Sentiment Tumbling in August
American consumers became less certain about the health of the economy in the first weeks of August, shaken by an escalation of trade tensions, the Federal Reserve’s rate cut, and volatile financial markets.
The University of Michigan said Friday its preliminary index of consumer sentiment for August was 92.1, down from July’s reading of 98.4. Economists had forecast a much milder decline to 97.5.
“Monetary and trade policies have heightened consumer uncertainty—but not pessimism—about their future financial prospects,” Richard Curtin, the survey’s chief economist, said in a statement.
Consumer’s reacted negatively to the Federal Reserve’s decision to cut rates, according to Curtin. The cut, which is meant to loosen monetary policy and stimulate the economy, raised fears of a possible recession.
“Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession. Falling interest rates have long been associated with the start of recessions,” Curtin said.
Still consumers remain confident about job prospects and income growth.
“It is likely that consumers will reduce their pace of spending while keeping the economy out of recession at least through mid 2020,” Curtin said.