April's UMich Consumer Sentiment Climbs 2.4%, Inflation Fears Intensify, Sparking Hawkish Market Reaction

The University of Michigan consumer sentiment index experienced a 2.4% increase in April, rising to 63.5 from a downwardly revised 62 in March, and surpassing predictions of 62.

Highlights From U-M Report:

• The index of current economic conditions rose from 66.3 in March to 68.6 in April, up 3.5%. 
• The index of consumer expectations rose from 59.2 in March to 60.3 in April, up 1.9%. 
• The year-ahead inflation expectations increased from 3.6% in March to 4.2% in April, highlighting that uncertainty over short-run inflation expectations continues to be notably elevated.
• Long-run inflation expectations remained stable at 2.9% for the fifth month in a row.
• According to Surveys of Consumers Director Joanne Hsu, "on net, consumers did not perceive material changes in the economic environment in April." "They still expect high inflation to persist, at least in the short run," she added. 

Read also: Major Bank Profits Surge More Than Expected In Q1, Drawing Customer Deposits From Smaller Players

Market Reaction: The SPDR S&P 500 ETF Trust SPY, which replicates the S&P 500 index, is trading flat on Friday. 

The yield on the 10-year benchmark Treasury bond rose by 6 basis points to 3.51%. The yield on the two-year Treasury note, reflecting expectations on Fed funds rate, rose by 13 basis points to 4.10%.

The latest CME Group FedWatch Tool shows the market is assigning a 80% chance of a 25-basis-point rate hike in May. 

Benzinga's Take: Despite a weakening labor market and contrary to fears of an imminent economic downturn, consumer sentiment in the United States remains stable in April.
Rising inflation expectations are a red flag for the Federal Reserve and may prompt policymakers to re-anchor inflation expectations by maintaining elevated interest rates for an extended period of time.

Read next: EXCLUSIVE: Majority Of Americans Hold Stocks, Remain Bullish Despite Banking Crisis

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