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If Americans don’t expect inflation to eventually decline, it could usher in an era of permanently higher prices.
This month, American sentiment has deteriorated, mainly due to stock market fluctuations.
The latest consumer survey from the University of Michigan showed sentiment is down 6% this month, according to the final reading released Friday, although sentiment is 6.5% better than a year ago. The survey also showed that Americans have become more pessimistic about the economy’s prospects for the coming year.
The decline was largely driven by higher-income consumers and consumers with significant shareholdings, consistent with recent weakness in stock markets, Joanne Hsu, director of university consumer research, said in a release.
The benchmark S&P 500 index is still down from its recent peak in July. Investors were spooked by the surprising resilience of the economy and fears that the Federal Reserve would keep interest rates higher for longer, sending Treasury yields soaring. The yield on 10-year US Treasury bonds hovers around 5%. August and September are usually difficult months for stocks.
With third-quarter earnings season underway, corporate earnings, especially large tech companies with above-average impact, could make or break the stock market.
So far, tech titans like Amazon, Meta, Microsoft and Google’s parent company Alphabet have posted solid results, with a few areas of concern. The tech-heavy Nasdaq entered correction territory on Thursday as some Big Tech stocks fell.
Apple, Amazon, Nvidia, Microsoft and Alphabet make up about a quarter of the value of the S&P 500 index, so investing Americans pay a lot of attention to the condition of these companies.
Meanwhile, Americans’ inflation expectations for the coming year worsened in October, jumping to 4.2% from 3.2% in September, the highest reading since May. The Federal Reserve pays close attention to inflation expectations, especially long-term expectations.
Expectations for the inflation rate over the next five to 10 years also rose to 3% this month, up slightly from 2.8% in September.
If Americans don’t expect inflation to eventually decline, it could usher in an era of permanently higher prices, making it extremely difficult for the Fed to bring inflation back to its 2% target.
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