Amidst high US inflation rates, consumer confidence has taken a hit, raising concerns about the future direction of inflation, unemployment, and interest rates. The University of Michigan's Consumer Survey revealed a significant drop in the May sentiment index, indicating a monthly decline of 12.7% and a year-on-year increase of 14.2%.

Inflation Expectations Rise

Inflation expectations rose for both one and five-year periods, with the one-year outlook reaching its highest level since November. This rise poses a significant challenge for policy makers considering the path of the FED's monetary policy.

Market Pricing Indicates Strong Expectation for FED to Begin Lowering Interest Rates

Market pricing points to a strong expectation that the FED will begin lowering the basic borrowing rate in September 2023. However, the outlook shows variability despite FED Chairman Jerome Powell stating that the central bank's next move will not be an interest rate hike.

Conclusion

The next significant data point for inflation will come with the release of the US Labor Department's April consumer price index report. Most Wall Street economists expect the report to show a slight moderation in price pressures, but the widely followed CPI index was running well above the Fed's target at 3.5% annually in March.