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Robust Consumer Confidence Lowers Odds on Rate Cuts

Jay Brahach January 17, 2020

American consumers are ignoring drama in the Middle East, China and the halls of Congress, with strong domestic economic conditions helping to keep confidence levels aloft. According to numbers released this morning, the University of Michigan’s Consumer Sentiment Index declined slightly in the first half of January, dropping to 99.1 from December’s 99.3 reading – but remained well above the 85.4 recorded in September.

With markets expecting a number closer to the 95 mark, yields and the trade-weighted dollar rose modestly.

Keeping in line with numbers from the latter half of 2019, near-term consumer confidence remained near historically high levels with the current conditions index increasing to 115.8, up from 115.5 in December. Hope for the future weakened somewhat, with the expectations gauge dropping to 88.3 – down from 88.9 in December.

One-year inflation expectations increased from 2.3% to 2.5%, and five-year inflation expectations rose from 2.2% to 2.5%, suggesting that consumers are girding themselves for higher prices in the future.

This could create a conundrum for the Federal Reserve, with strong spending plans and rising price expectations colliding with a cooldown in business investment to limit the central bank’s room for maneuver. Markets are currently anticipating another 25-basis point cut by the end of the year, but with the economy decelerating more slowly than previously feared, further easing may not come to fruition.

Jay Brahach
Account Executive & Currency Analyst

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