Consumer sentiment dampens as tariffs bite

An editorial look at how tariffs and inflation data shape consumer mood and policy signals in August.

Consumer sentiment worsened in August amid sweeping new tariffs

August consumer sentiment fell after a brief uptick, according to the University of Michigan survey. Respondents expect inflation to rise to about 4.9% in the year ahead, up from 4.5%, a signal that tariff policy is shaping expectations even as current inflation cooled. The report notes tariffs on nearly 70 countries are a likely pressure on prices in the months ahead, even as an earlier inflation reading suggested cooler price gains in the near term.

Growth slowed in the first half of 2025 and the labor market cooled, the data show. The Federal Reserve left rates unchanged in July and cautioned that tariffs could push up prices and weigh on activity, depending on their final level. In a separate political development, Erika McEntarfer was fired as BLS commissioner, prompting criticism from former officials about data independence. Despite these headwinds, consumer spending rose modestly and corporate earnings remained solid, illustrating a mixed path for the economy.

Tariffs act as a tax on everyday goods and a signal about policy risk. The August data show that when policy changes are announced, consumer confidence can slip faster than prices rise. The firing of a senior statistics official feeds worries about data integrity at a moment when the economy needs clear signals.

The economy shows pockets of resilience, with spending and earnings staying steady, but the path ahead depends on inflation and how quickly tariff effects take hold. The central bank faces a balancing act between keeping prices in check and supporting growth, while political moves add noise to the forecasting picture.

Highlights

The coming months will test how policy choices influence inflation and growth without triggering a sharper downturn.