Inflation Worries Flare. Is a Rate Hike Back on the Table?

Inflation fears have resurfaced, with consumers growing increasingly concerned about near-term inflation as President Donald Trump pushes aggressive tariffs against major U.S. trading partners. The University of Michigan consumer survey for February showed that respondents expect the inflation rate a year from now to be 4.3%, a 1 percentage point jump from January and the highest level since November 2023. Though Trump postponed tariffs against Canada and Mexico, the looming threat of price pass-throughs to consumers shook sentiment. "Many consumers appear worried that high inflation will return within the next year," said Joanne Hsu, the survey's director. "This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations."

Longer-run expectations weren't hit as much, with the five-year outlook drifting up to 3.3%, a 0.1 percentage point gain. Stocks turned lower after the report, with the Dow Jones Industrial Average initially off more than 100 points. Worries over inflation dovetailed with lower optimism overall, as the headline index fell to 67.8, a one-month drop of 4.6% and an 11.8% move lower from the same month a year ago. Economists surveyed by Dow Jones had been looking for a reading of 71.3.

Hsu said overall declines in the various survey indexes reflect "a perception that it may be too late to avoid the negative impact of tariff policy." The current conditions index also slumped, down to 68.7, or 7.2% lower than January and 13.5% down from a year ago. Expectations declined to 67.3, for a respective drop of 2.9% and 10.5%.



This article is part of: World Economic Forum Annual Meeting

The global economy faces significant challenges in 2025, according to the latest Chief Economists Outlook. Optimism on the short-term prospects for US growth is tempered by concerns over rising debt and inflation. Almost half of chief economists still expect global trade volumes to rise, despite intensifying worries over retaliatory cycles of protectionist measures. The year ahead looks set to be an eventful one for the global economy. The outlook remains subdued, with a majority of chief economists (56%) expecting the global economy to weaken over the next year, according to the latest World Economic Forum Chief Economists Outlook. Only 17% foresee an improvement, pointing to weakness in key regions and increasing risks of fragmentation.

"Expectations for global growth are muted overall but subject to significant regional divergence," the report notes. While the United States appears poised for a short-term boost – with 44% of economists predicting strong growth in 2025, up from 15% when they were last asked in August 2024 – the outlook for the year ahead remains less optimistic for other major parts of the global economy, including Europe and China.

The Chief Economists Outlook, published three times a year, surveys leading chief economists from across industries and international organizations. The latest edition explores key trends in the global economy, including the latest expectations for growth and inflation, the likely impact of policy changes in the US, and the outlook for global trade.

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