Consumer sentiment reached a four-month high in January, according to this month's University of Michigan Surveys of Consumers. .The index tracking consumer sentiment increased 2.1 percent to 54.0 from 52.9 in December, but was still 24.7 percent lower than its year-ago mark. Sentiment improved among lower-income consumers, but dropped among those with higher income. The index measuring current economic conditions increased two points to 54.2, but was 30 percent lower than in January 2025. The index of consumer expectations increased less than 1 percent to 55.0 from 54.6 last month, but was more than 20 percent lower than 12 months earlier. “Although consumers’ worries about tariffs appear to be gradually receding, they remain guarded about the overall strength of business conditions and labor markets,” according to the report. The U.S. unemployment rate was 4.4 percent in December, down from 4.5 percent the previous month. J.P. Morgan, EY and Moody’s place the odds of a recession this year at around 35-42 percent, while other forecasts see less of a chance. Year-ahead inflation expectations remained at 4.2 percent this month, its lowest reading in a year but still higher than December’s 3.3 percent. Long-term inflation expectations increased to 3.4 percent from 3.2 percent last month, higher than last year’s range of 2.8 percent to 3.2 percent. The Federal Open Market Committee reduced interest rates three times last year, to 3.5 to 3.75 percent. The survey was taken before the Federal Reserve received grand jury subpoenas from the Justice Department connected to a criminal investigation into its chair, Jerome Powell. In a video posted Sunday, Powell said the subpoenas threatened a criminal indictment related to his testimony last year before the Senate Banking Committee, surrounding the renovations of Federal Reserve office buildings. Powell alleged the investigation is part of a pressure campaign from the Trump administration to chip away at the Federal Reserve’s independent authority to set interest rates. On Jan. 12, President Donald Trump denied knowing of the subpoenas before Powell’s announcement. It is unclear if those developments will impact consumer sentiment and/or inflation expectations.
