Consumer Inflation Worries Highest Since 2008, U Of M Survey Says: Wall Street Tumbles To 2-Month Lows

Long-term inflation expectations among U.S. consumers have surged to their highest levels since the summer of 2008, raising fresh concerns over the Federal Reserve's ability to rein in price pressures.

In a report released Friday, the University of Michigan's preliminary consumer sentiment survey for January revealed a notable shift in inflation expectations.

The year-ahead inflation gauge jumped to 3.3%, up from December's 2.8%, while five-year expectations also rose to 3.3% —marking the sharpest level since June 2008.

Consumer Sentiment Little Changed, Inflation Fears Intensify

The overall consumer sentiment index dipped slightly to 73.2 in January, marginally missing economist forecasts of 73.8 and down from 74 in December.

This minor decline is overshadowed by the sharp rise in inflation expectations.

“Consumer sentiment was essentially unchanged in January,” said Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.

She highlighted the alarming increase in inflation expectations across both the short and long term, noting that it was only the third time in four years that such a significant shift had occurred.

“For both the short and long run, inflation expectations rose across multiple demographic groups, with particularly strong increases among lower-income consumers and Independents,” Hsu said.

Despite concerns about inflation, the index for current economic conditions improved to 77.9 in January, the highest reading since April 2024 and up from 75.1 in December. This gain was offset by a drop in the consumer expectations index, which fell to 70.2, its lowest point since July 2024.

The broader economic implications of the report are troubling.

Rising long-term inflation expectations suggest that consumers may believe the Federal Reserve will struggle to bring inflation back to its 2% target, potentially leading to entrenched pricing pressures across the economy.

One possible explanation, not addressed in the report, is that the January’s University of Michigan survey may already be capturing consumer concerns about the impact of the incoming Trump administration's planned tariff hikes, which could push up prices on goods and services.

Markets Extend Losses As Inflation Angst Grows

Wall Street reacted swiftly to the concerning data, with major indices extending Friday's selloff, which had already been fueled by a surprisingly strong jobs report.

The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, fell 1.5% by 10:15 a.m. in New York trading to drop below the 5,800-point mark. The index has now erased all gains made during the post-election rally.

The Dow Jones Industrial Average also slipped 1.4%, touching its lowest levels since early November, while the Nasdaq 100, represented by the Invesco QQQ Trust QQQ, plummeted 1.8%. Small-cap stocks, measured by the Russell 2000 index, tumbled 1.9%, hitting a three-month low.

Sector performance was broadly negative, with energy stocks being the sole exception. Rising crude oil prices, fueled by tightening U.S. sanctions on Russia, bolstered the sector. West Texas Intermediate crude –—as tracked by the United States Oil Fund USO — surged over 4%, reaching $77 a barrel.

Gold, often seen as a safe haven during periods of uncertainty, gained 0.8% as investors sought protection against both inflationary pressures and growing geopolitical risks.

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