AYESHA RASCOE, HOST:
Americans are feeling a little less bullish about the economy these days, and that's spilling over into their buying habits. It's also rattling the stock market. NPR's Scott Horsley follows both the money and the mood swings, and he joins us now with an update. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Ayesha.
RASCOE: What are people saying about how they're feeling right now about the economy?
HORSLEY: They are telling pollsters their mood is not quite so chipper. The University of Michigan tracks consumer sentiment every month, and its latest index, which came out Friday, shows a pretty big erosion since the start of the year. Joanne Hsu - who runs that survey - says people are more nervous now about where prices might be headed.
JOANNE HSU: We've seen two consecutive months of sizable increases in inflation expectations, both for the short run as well as the long run. People are really concerned that inflation could come surging back.
HORSLEY: Now, as usual, there is a partisan divide. Democrats are gloomier about the economy now, while Republicans are much more upbeat. That's a mirror image of what we saw when Joe Biden was in the White House. But if you just look at independents who tend to be less swayed by the political wins, their economic outlook has definitely worsened since the beginning of the year.
RASCOE: Why are people worrying about inflation making a comeback?
HORSLEY: Well, progress on inflation has kind of stalled in the last few months. The inflation rate in January was 3%, which is higher than the month before and higher than we'd like it to be. There's also a real concern that some of these big tariffs that President Trump is talking about could push prices even higher. You know, if you slap a 25% tax on imported aluminum, that's probably going to raise the cost of a six-pack of soda pop. And you're already seeing some impact on people's spending habits. Late last year, we saw a burst of spending as businesses and consumers tried to stock up ahead of the tariffs. Now they're feeling like that window may have closed, and they're keeping a tighter grip on their wallets.
RASCOE: But most of Trump's tariffs have not taken effect yet, right?
HORSLEY: That's right. And, you know, some of them may never take effect. The president has threatened to impose tariffs on all sorts of imports from all over the world, but so far, the only tariffs that have actually kicked in are a 10% tax on imports from China. It's possible some of these other tariffs that Trump has threatened will be negotiated away. That's why inflation watchdogs at the Federal Reserve, for example, are having a tough time predicting just what impact the President's policies might have on the economy.
And of course, in addition to tariffs, they're also watching what happens with taxes and regulation and immigration. Just a few days ago, we got the minutes from the most recent Fed meeting, and it looks like the central bank is not likely to make any more cuts in interest rates until we see more progress on inflation or some kind of collapse in the labor market. Now, we have seen some widespread job cuts in the federal workforce, led by Elon Musk and his DOGE team. We're still waiting to see what that does to the overall job market.
RASCOE: Interest rates are still pretty high. So how is that affecting people's spending behavior?
HORSLEY: People do seem to be dialing back their spending, especially on big-ticket items - sales of cars and furniture and appliances were all down last month. Interest rates on home mortgages have been hovering just under 6.9%. That's keeping some would-be buyers out of the market. For people who have money in the bank, these high interest rates can be a plus. You know, they're earning a little bit more on their savings accounts.
But for anybody who's carrying a balance on their credit card, it's really expensive. The stock market got a scare this week when Walmart, the retail bellwether, suggested its sales - which have been really strong - could slow down in 2025. Stocks were one thing that got cheaper this week. The Dow Jones Industrial Average tumbled more than 1,100 points over the course of the week, losing just over 2.5%.
RASCOE: That's NPR's Scott Horsley. Thank you so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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