The University of Michigan consumer sentiment number at 50.2 is at the lowest levels ever recorded. The last time we were this low was in 1980 when we were feeling the worst effects of the inflation, oil shock, and Fed tightening at the end of the Carter Administration. The only time we get these low numbers are when we are entering a recession.
What is as disturbing is the acceleration of the decline. Of course, we are seeing an oil shock, an economic slowdown, and rising interest rates, yet the job situation is still positive, household balance sheets are in good shape, and housing, the sector where most wealth is held, is firm. This is all about the pump and the shopping basket; however, it still matters and can feed on itself.
The Fed now has the dual problem of solving inflation while not driving the economy into a recession. This is much worse than expected because inflation is closely tied to a supply shock that cannot be easily addressed through monetary policy.
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