Latest / Markets with Megan: A Quick Financial Markets Update / The Fed Faces a Tariff-ied Consumer | S2 E026 | 03-28-25

Transcript

The Fed Faces a Tariff-ied Consumer | S2 E026 | 03-28-25 · Markets with Megan: A Quick Financial Markets Update

• 0:02
  Speaker 0: inflation continues to batter the consumer.
• 0:04
  Speaker 0: It is friday, march the 28th, and this is markets with megan.
• 0:08
  Speaker 0: If you like this podcast, please subscribe, hit that alarm bell, share it with friends, family or colleagues.
• 0:13
  Speaker 0: But we're here today with two pretty big um in economic data reports that we received this morning.
• 0:19
  Speaker 0: First of all, the monthly pce, and that is the Fed's preferred inflation indicator.
• 0:25
  Speaker 0: This gets released along with personal income and spending.
• 0:29
  Speaker 0: And then we got the final reading on the University of Michigan Consumer Sentiment Index.
• 0:34
  Speaker 0: So let's dig right into the details here.
• 0:36
  Speaker 0: First of all, from an income perspective, it was a pretty big increase on 0.8%, after 0.9% last month.
• 0:44
  Speaker 0: And then on the spending side, this is where we'll focus because we're trying to gauge the health of the consumer, given that the economy is slowing.
• 0:51
  Speaker 0: We did see that it was a negative number last month, in January it was down 0.2% and it did rebound a bit to 0.4%.
• 1:00
  Speaker 0: But the primary cause of that rebound was due to durable goods and I think that some of that may have to do with consumers, I guess, buying ahead of the anticipated tariffs, specifically around the automotive side of the market.
• 1:14
  Speaker 0: If you look at the service side, which is where we spend the majority of our money.
• 1:19
  Speaker 0: That actually dropped for the first time in three years.
• 1:23
  Speaker 0: Now let's look at the core PCE.
• 1:25
  Speaker 0: This is the inflation reading and this is what the Fed's looking at.
• 1:29
  Speaker 0: The headline level was tame, but if you look at the core level, it rose a little bit bigger than expected, at 0.4% after a 0.3% expectation, and on a year-over-year level, this is now rising 2.8% and that's up from 2.6% in January.
• 1:48
  Speaker 0: So it's going in the wrong direction for the Federal Reserve.
• 1:50
  Speaker 0: When you look at where some of these price increases came from, it was in other services, so still the service side, and primarily on the legal expenses, as well as repairing household appliances and furnishings.
• 2:06
  Speaker 0: Now let's dig into the consumer, and this was what really turned the market a bit, and we'll get into that a second.
• 2:12
  Speaker 0: First of all, the sentiment indicator.
• 2:15
  Speaker 0: This is the final reading, so we get an initial reading in the first couple weeks of March and then we get the final reading at the end of the month.
• 2:22
  Speaker 0: The final reading came in lower than the first reading.
• 2:25
  Speaker 0: It was the lowest since November of 2022.
• 2:28
  Speaker 0: Current conditions was a little bit better, but when you look at future expectations, that continues to be weak, and this we've seen in other reports as well.
• 2:38
  Speaker 0: Consumers are concerned about the future of the economy.
• 2:41
  Speaker 0: This fell to the lowest level since July of 2022.
• 2:46
  Speaker 0: But this is the big thing when you look at inflation and expectations.
• 2:49
  Speaker 0: So if consumer inflation expectations are going higher, that means they may spend in advance of the expectation for inflation and unfortunately, that just fuels this vicious circle of inflation.
• 3:02
  Speaker 0: So when you look at the one-year inflation expectations, they rose to 5%.
• 3:07
  Speaker 0: That's the highest since November of 2022.
• 3:11
  Speaker 0: And that's up from just 2.8% to start this year.
• 3:15
  Speaker 0: So almost a double increase in just the first quarter of this year.
• 3:19
  Speaker 0: When you look at five to 10-year expectations, these tend to be more tame.
• 3:23
  Speaker 0: They take out some of this near-term noise.
• 3:26
  Speaker 0: They rose to 4.1% for inflation expectations over the next 5 to 10 years.
• 3:31
  Speaker 0: That is the highest level we've seen since 1991.
• 3:35
  Speaker 0: So what is the market doing with these two big data reports?
• 3:38
  Speaker 0: First of all, we're seeing bond yields lower, prices are higher and that's because now the focus is more on the growth part of these numbers than the inflation.
• 3:49
  Speaker 0: Obviously, inflation is a concern, inflation is a problem, inflation is proving sticky, but the bond market is more concerned about the future expectation of economic growth.
• 3:59
  Speaker 0: So we're seeing yields lower.
• 4:00
  Speaker 0: We're also seeing equities taking a pretty big hit as well, and that's also from the growth concerns here.
• 4:06
  Speaker 0: That's all we have today and for this week.
• 4:09
  Speaker 0: We'll be back next week with some more economic data.
• 4:12
  Speaker 0: And don't forget April 2nd is the big reciprocal tariff day, so we'll be back with a bunch more information next week.
• 4:18
  Speaker 0: If you want further history of our podcast, you can always go to marketswithmeganfm.
• 4:23
  Speaker 0: Thank you.