For months now, the general consensus has assumed that the Fed will soon lower interest rates. Whenever a member of the Federal Reserve speaks, it seems that their confidence is low. Their collective outlook on the economy is gloomy, and many times they have dropped hints that rate changes are coming.
But today, we got interesting news that suggests that American consumers feel very differently from the Fed. Consumers actually believe the economy is in a great place, at least if the consumer confidence index is to be believed.
The index jumped to 135.7 from a June mark of 124.3. The new number approaches an 18-year high for the index. And yet, the Fed continues to insist that change is due soon.
For consumers, June was a stressful month. Amidst constant talks of trade tensions and tariffs, adrenaline ran high. For the average consumer, those buzzwords are foreign, murky topics. They don’t know exactly what it might mean, but they know it sounds bad.
As a result, consumer confidence took a nose dive. The index sunk to that lower 124.3 mark and seemed to mirror the Federal Reserve’s lack of faith in the Trump Administration.
This month, though, that rhetoric has faded. Some of the tariffs have been removed, while others have shifted to the background as the news cycle focuses on the new hot story of the day. Consumers have less to worry about, and during the summer months, they’re probably more relaxed and spending more money, too. So the index moved up, almost touching an 18-year high at 135.7. But the Fed remains unconvinced.
Is there still reason to be concerned? The Fed certainly seems to be, and seem to be intent to still lower interest rates. In fact, analysts expect those cuts to come on Wednesday when the Fed announces its rates.
But is it all much ado about nothing? Many of the economic indicators are still strong: spending is rising, incomes are high, unemployment is low and consumer confidence is elevated. Is there actually reason to be alarmed.
The Fed is responding to stagnant inflation, which they want to keep at a certain level. But those low interest rates can be a boon to consumers. So it is difficult to be certain how lowering rates will impact the economy. We are about to find out, though, as those rates are almost certainly coming tomorrow.