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On Friday, Wall Street experienced a decline as concerns about US consumers and the possibility of stagflation loomed.
The latest data indicates that American consumers are increasingly worried about the impact of President Donald Trump’s tariffs on the economy, while inflation, as per the Federal Reserve’s preferred measure, saw an increase in February.
Investors are apprehensive about the combination of Trump’s trade policies, overall economic uncertainty, and the potential impact on economic growth and inflation. This led to a sell-off in US equities and a move towards safer investments.
The S&P 500 and Nasdaq Composite both saw significant drops, while US government debt rallied. The 10-year Treasury yield decreased to 4.26 per cent.
Economist James Knightley from ING noted, “US data is heightening stagflation concerns, with rising inflation and declining consumer spending likely exacerbated by Trump’s tariff actions and government spending cuts.”
A survey by the University of Michigan revealed a sharp decline in consumer sentiment in March, with worries about job security, inflation, and income levels. Expectations for long-term inflation reached 4.1 per cent, the highest since 1993.
Consumer spending showed a modest increase in February, falling short of economists’ forecasts. However, there are signs of a slowdown in demand growth, according to Pantheon Macroeconomics’ Oliver Allen.
Goldman Sachs revised its first-quarter GDP forecast downwards due to weak data, while the Atlanta Fed also adjusted its projections to show a contraction. The core PCE price index rose by 2.8 per cent year-on-year in February.
The Fed recently adjusted its inflation forecast and growth outlook, with Chair Jay Powell emphasizing that the economy remains strong and there is no rush to change interest rates. However, Austan Goolsbee from the Chicago Fed mentioned a shift from the previously optimistic outlook.