Consumer Confidence Plunges, Inflation Expectations Surge—Is Stagflation Looming?

The latest University of Michigan Consumer Sentiment Index and Bloomberg’s 5–10-year inflation expectations offer more evidence that the U.S. economy may be headed toward stagflation—a troubling mix of slowing economic growth and persistent inflation.
• Consumer sentiment continues to decline, signaling reduced confidence in the economic outlook.
• At the same time, long-term inflation expectations have hit new highs, reflecting concerns about sustained price pressures.
The growing divergence between economic activity and inflation is concerning. In fact, the consensus probability of a recession has now climbed to 50%. While we’re still waiting for hard data to confirm these trends, consumer perception—one of the key drivers of the U.S. economy—is increasingly pessimistic.
If sentiment doesn’t improve and inflation expectations remain elevated, the risk of stagflation becomes harder to ignore.

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