Following a chaotic week in the Treasury market, March’s CPI report offered a brief sigh of relief: headline inflation dipped -0.1% for the month, pulling the annual rate down to 2.4%—the lowest in over a year. Core inflation also softened to 2.8%, easing pressure on the Fed. But policymakers aren't celebrating. Fed Chair Jerome Powell called the data “encouraging but backward-looking,” emphasizing that tariff-induced volatility could soon reignite price pressures. Minneapolis Fed President Neel Kashkari echoed deeper concerns, noting that rising yields and a falling dollar may reflect a global loss of confidence in U.S. assets.
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Those concerns are echoed by the American public. The University of Michigan’s consumer sentiment index fell to 50.8 in April, the lowest since June 2022 and well below expectations. The drop marks a 30% decline since December, with sentiment around personal finances, business conditions, and labor markets deteriorating rapidly. Even more concerning: year-ahead inflation expectations jumped to 6.7%, the highest since 1981, while the five-year outlook rose to 4.4%.
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If consumers internalize a new inflation norm, the Fed may be forced into hawkish action despite slowing growth. With long-term expectations unanchoring and policy uncertainty mounting, Powell’s balancing act is no longer just about inflation—it’s about credibility.

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