Consumer Sentiment from the University of Michigan unexpectedly cratered to an 11-year low in February as inflation continues to weigh heavily on the consumer. Over half of those surveyed stated that they expect their household income to decline in the year ahead when adjusted for inflation, which was primarily responsible for the sharp drop in the Future Expectations component (bottom graph). Such pessimistic Sentiment readings have historically been associated with economic recessions, with the exception of the 2011 political showdown over the debt limit. With inflationary psychology becoming ingrained in the consumer, the Federal Reserve has no choice but to tighten policy quickly (and possibly aggressively) to get inflation expectations under control.
