Inflation expectations rising

Why do holiday-shortened weeks always feel longer than regular ones? This past one was likely due to the ongoing blizzard of new administration policy announcements and some economic data potentially pointing toward a slowing economy. 

News of tariff imposition has caused some companies to give more guarded operating and financial guidance for 2025 simply because the range of possible outcomes is broad and uncertain. There is also evidence that consumers’ fear of tariff-induced inflation is leading to changes in buying patterns. In the University of Michigan consumer sentiment survey, year-ahead inflation expectations jumped from 3.3% in January to 4.3% in February, and longer-run expectations rose from 3.2% to 3.5%, the largest monthly increase since May 2021. 

Other economic data showed the manufacturing sector continued to expand in February, while the much larger services sector index contracted to its lowest reading since January 2023, led lower by declines in employment and prices charged. Weekly jobless claims inched higher at 219,000—the same as their three-year average. A larger-than-average number of these claims came from the metro-Washington, D.C., area, perhaps a prelude to more government employee layoffs to come. The Federal Reserve has several more weeks before its March 19 meeting to digest the swirl of information.