WASHINGTON: US consumer sentiment slumped to a six-month low in May on worries that political haggling over raising the federal government’s borrowing cap could trigger a recession.
The University of Michigan’s survey on Friday also showed consumers’ long-term inflation expectations jumping this month to their highest reading since 2011, bad news for the Federal Reserve after it signaled last week that it could pause the US central bank’s fastest monetary policy tightening cycle since the 1980s.
“This report has a bit of a stagflationary feel about it,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “This increase in inflation expectations is likely to add to a spirited discussion about whether to hold or hike again at the June 14 meeting.” The survey’s preliminary reading on the overall index of consumer sentiment came in at 57.7 this month, the lowest reading since last November and down from 63.5 in April.
Economists polled by Reuters had forecast a preliminary reading of 63.0. The survey’s current economic conditions index fell to 64.5 from 68.2 in April. Its measure of consumer expectations dropped to 53.4 from 60.5 in the prior month.
Surveys of Consumers Director Joanne Hsu partially attributed the deterioration in sentiment to the debacle in Washington and warned that “if policymakers fail to resolve the debt ceiling crisis, these dismal views over the economy will exacerbate the dire economic consequences of default.” The non-partisan Congressional Budget Office warned on Friday that the nation faced a “significant risk” of defaulting on payment obligations within the first two weeks of June without a debt ceiling increase.
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