Demcession Rising: Democrat Panic Could Hurt the Economy
Consumer sentiment is collapsing, and the cause isn’t economic fundamentals—it’s politics.
The latest University of Michigan consumer sentiment survey shows confidence plunging to 57.9 in March, its lowest level since November 2022. While sentiment declined across all demographics, the drop is overwhelmingly driven by Democrats, whose economic expectations have fallen to an all-time low. At 28.2, their outlook is now worse than during the financial crisis, the depths of the pandemic, or Trump’s first term.
By contrast, Republican expectations remain high at 95.7, maintaining a 67.5-point gap between the two parties—the largest ever recorded. Independent voters, usually a middle ground, now sit closer to Democrats than Republicans, indicating a broad shift in sentiment among those outside the GOP base.
This kind of partisan divide isn’t new, but it has reached unprecedented levels. For years, political affiliation has been the most important factor in shaping how Americans perceive the economy, often outweighing actual economic conditions. But what’s happening now goes beyond perception. When consumer sentiment is shaped by politics rather than reality, it can have real economic consequences.
Just Because It’s Partisan, Doesn’t Mean It Isn’t Real
It would be easy to dismiss the latest survey as a reflection of Democrats irrationally reacting to Trump’s policies. They see a second Trump term and assume disaster, despite stable job growth and resilient consumer spending. But politics can trump economics, and when people believe the economy is in freefall, they act accordingly.
The University of Michigan’s Richard Curtin—the now retired guru of consumer sentiment surveys—warned as far back as 2017 that partisan-driven expectations can shape consumer behavior, and that’s exactly the risk today. If millions of Democratic consumers expect an economic collapse, they may cut back on spending, delay major purchases, or pull back on investments.
Consumer sentiment matters because it drives consumer behavior, and consumer behavior drives the economy. This dynamic played out under Biden, when Republicans, convinced his policies would lead to a deep recession, became more cautious with spending and investing. Now, the roles have reversed—Democrats are bracing for catastrophe, and their collective retreat could slow down growth.
Can Inflated Fears Inflate Prices?
That panic is also showing up in inflation expectations. During Biden’s presidency, Republicans were far more concerned about inflation, correctly anticipating its persistence while many economists and Fed officials downplayed the risks. (As it turned out, Republicans got that one right.) Now, that trend has completely reversed. Democrats now expect inflation to surge to 6.5 percent, while Republicans expect virtually no inflation at all—just 0.1 percent. Independents, at 4.4 percent, are once again positioned between the two extremes.
This shift in expectations is remarkable. From 2021 to 2023, Republicans were convinced inflation would remain a problem, and Democrats insisted it would fade quickly. Now, the gap has flipped completely, and the difference between the two parties is the largest ever recorded. This highlights how inflation fears are no longer just about economic indicators; they have become political. But just as before, expectations shape reality.
Here at Breitbart Business Digest, we’re skeptical of the theory that inflation expectations do all that much to shape inflation. It doesn’t seem plausible—and there is little evidence—that worker wage demands drive inflation or are much influenced by inflation expectations. Rather than setting wage requirements based on expectations, workers typically react to recent past inflationary patterns. That is, they demand higher wages not because they see inflation coming but because the inflation that has already happened has eaten away their standard of living.
Whatever role expectations may play, the rate of inflation appears to us to be dominated by fiscal and monetary policy. But that doesn’t mean inflation expectations can be safely ignored.
It pays to watch what is happening with expectations because the Federal Reserve is convinced that they matter a lot. And this means that record high inflation expectations are likely to influence the path of monetary policy—even if they don’t do much to influence inflation itself. That raises the risk that the Fed could make the mistake of keeping monetary policy too tight, which in turn would put the economy at risk of slipping into a recession.
There’s another way inflation expectations affect the economy—and it is almost the opposite of what the Fed thinks. When consumers expect prices to rise rapidly in the future, they scale back purchases in order to pre-emptively save so that they can afford higher-prices later. They take on less consumer debt, most of which is at adjustable rates that tend to go up when inflation rises, which holds them back from making major purchases. So, rising inflation expectations are actually a drag on the economy rather than an inflationary accelerant.
The Only Thing We Have to Fear Is Fear Itself
The biggest risk to the economy right now isn’t Trump’s tariffs or Federal Reserve policy—it’s the fact that one-half of the country believes the economy is both collapsing and on the precipice of a surge of inflation. Add to that the fact that the Fed sees rising inflation expectations as a reason to tighten monetary policy. If Democratic consumers stop spending, economic growth could slow. If businesses see declining demand, hiring could weaken. If markets react to consumer pessimism, investment could pull back. And the Fed is likely to refuse to loosen monetary policy because it reads inflation expectations backward.
None of this means Trump’s economy is actually in trouble yet; but if enough people believe it is, their behavior can create real economic drag.
Partisan consumer sentiment gaps have been growing for years, but we’ve now entered uncharted territory. The key takeaway isn’t just that Democrats are panicking—it’s that their panic could have real economic consequences. If enough Democratic consumers start behaving as though we’re in a recession, they could slow down the economy—even if the fundamentals remain strong. Sentiment is political, but spending is real. And that’s what conservatives should be watching in the months ahead.