U.S. consumer sentiment deteriorated sharply in early September, with the University of Michigan's Consumer Sentiment Index falling to 47.8 from 51.7 in August—a steeper miss than the 51.0 consensus forecast.
Twelve-month inflation expectations jumped to 4.6 percent from 4.0 percent in August, a 60-basis-point move that extends the highest reading since February. Five-year expectations rose to 3.4 percent from 3.3 percent, remaining above the 2.8-3.2 percent range posted during 2024.
"With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come," said Joanne Hsu, director of the Surveys of Consumers.
The collapse in confidence cuts across political lines. Sentiment among Democrats and Republicans both declined, though Independents showed little change.
For the bond market, the 4.6 percent near-term inflation print is the consequential number. Investors pricing in sustained upside inflation risk are demanding higher compensation on nominal Treasuries, pushing duration risk higher across existing fixed-income portfolios. The jump in near-term expectations typically steepens the short end of the curve as markets price a higher probability the Federal Reserve holds restrictive policy rates elevated for an extended runway.
