Soft data is falling hard

Federal Reserve officials, most prominently Chair Jerome Powell, have repeatedly said they are keen to see if the recent worsening of so-called soft economic data will leak into the so-called hard data. A more precise distinction between the two is helpful. The former refers to survey-based data, and the latter is based on statics from, mostly, federal government reports. 

Policymakers might have to revise their thinking now that the king of soft data, the  University of Michigan survey of consumer confidence, offered plenty of hard numbers in the form of “since” dates in its mid-April report:

• Consumer sentiment plunged 10.9% from late March to 50.8, its lowest reading since June 2022 and the second lowest in the survey’s history, which stretches back to 1952.
• Respondents’ year-ahead inflation expectations soared to 6.7%, the highest mark since 1981 and up from 5% in March. In five years, respondents anticipate inflation will climb to 4.4%, 30 basis points more than last month and the highest since June 1991.
• The current economic conditions index plummeted 11.4% to 56.5, and expectations declined 10.3% to 47.2, the lowest since 1980. Annualized figures showed decreases of 28.5% and 37.9%, respectively.

Perhaps the Fed shouldn’t wait any longer. We will know much more about officials' thoughts in the policy statement and Powell's press conference that come after next week's FOMC meeting. One thing is certain: policymakers have their work cut out for themselves as they try to balance higher inflation with slowing growth.