US Consumer Sentiment Improves Amid Ongoing Tariff Concerns

Optimism in Consumer Sentiment Meets Geopolitical Pressures and Rising Oil Prices

In June 2025, U.S. consumer sentiment showed a positive shift for the first time in six months, reflecting easing trade tensions between the U.S. and China.

However, despite the optimism, households remain cautious about the economic outlook.

According to the University of Michigan’s Surveys of Consumers, this increase in consumer sentiment coincided with a period of geopolitical unrest, including Israel’s missile strikes against Iran, which resulted in a surge in oil prices and negatively impacted global stock markets.

Consumer Sentiment Rises Amid Trade De-Escalation

The latest data from the University of Michigan revealed that consumer sentiment increased in June, reaching a score of 60.5 from May’s final reading of 52.2.

This marked a notable improvement, although it still remained approximately 20% lower than the level recorded in December 2024, when sentiment had soared following President Donald Trump’s victory in the November elections.

Economists had predicted a modest rise in sentiment, with forecasts placing the index at 53.5, yet the actual result exceeded expectations.

While this increase signals some recovery in consumer confidence, the overall mood remains mixed. As geopolitical risks, particularly in the Middle East, continue to escalate, the uptick in sentiment may prove to be short-lived.

Increased oil prices, driven by global tensions, are expected to cause further strain on consumers’ wallets, particularly at the gas pump.

This shift in oil prices could dampen the recent improvements in sentiment, as households begin to feel the sting of higher fuel costs, a crucial element in day-to-day expenses.

Geopolitical Risks Weigh on Market Sentiment

As the situation in the Middle East remains volatile, market sentiment continues to be heavily influenced by geopolitical events.

Israel’s missile strikes against Iran drove oil prices to multi-month highs, which, in turn, added downward pressure on stock markets worldwide.

These developments have led to increased caution among investors, with Wall Street stocks experiencing a decline, while the U.S. dollar strengthened against a basket of currencies.

Treasury yields also saw an uptick, signaling some degree of market volatility.

Eugenio Aleman, Chief Economist at Raymond James, cautioned that any improvement in consumer sentiment may be short-lived if the geopolitical risks and oil price hikes persist.

“The same is probably true for inflation expectations,” he added.

Although inflation expectations did improve slightly this month, the higher cost of fuel could soon erode some of the gains in consumer confidence.

Inflation Expectations Improve, But Price Pressures Persist

One of the more encouraging aspects of the recent consumer sentiment report is the slight improvement in inflation expectations. Consumers’ one-year inflation expectations fell to 5.1% from 6.6% in May.

This decrease suggests that consumers have become somewhat less concerned about a surge in prices due to the tariffs imposed by the Trump administration.

The easing of these expectations has likely been influenced by relatively tame consumer price increases over the past three months.

However, economists warn that this period of calm inflation may not last.

As businesses begin to exhaust their inventories that were built up before the tariffs were enacted, prices are expected to rise in the latter half of 2025. Long-term inflation expectations also saw a small decline, dipping to 4.1% from 4.2% in the previous month.

Despite these changes, inflation concerns remain high on consumers’ minds, as evidenced by the historically elevated expectations.

Oren Klachkin, Financial Market Economist at Nationwide, noted that although inflation expectations have softened slightly, they remain elevated.

Federal Reserve Faces Pressure Amid Ongoing Tariff Uncertainty

The Federal Reserve, which will hold its policy meeting in the coming week, may take note of the decrease in inflation expectations.

However, many policymakers had previously dismissed the high inflation readings as an anomaly.

As the Fed prepares for its next meeting, officials are likely to adopt a wait-and-see approach, monitoring the economic effects of tariffs and global economic conditions.

Currently, the Federal Reserve is expected to maintain its benchmark overnight interest rate in the range of 4.25%-4.50%, while closely observing developments in global trade and the potential effects on domestic inflation.

As the impact of tariffs continues to reverberate through the economy, the central bank faces a delicate balancing act in terms of managing inflation while supporting economic growth.

Economic Outlook: Consumer Confidence Remains Fragile

While consumer sentiment showed improvement in June, concerns about the future of the U.S. economy remain.

Many consumers still perceive significant downside risks, particularly in relation to business conditions, personal finances, and the broader economic trajectory.

According to Joanne Hsu, the Director of the University of Michigan’s Surveys of Consumers, the improvement in sentiment may be fleeting, as consumers remain wary of ongoing geopolitical and economic uncertainties.

Despite the modest increase in the Consumer Sentiment Index, the overall outlook remains cautious.

Consumers are still grappling with the volatility of the past few months, including the unpredictable nature of the tariff situation and the continuing geopolitical risks.

Although sentiment improved across all age, income, wealth, and political party affiliation groups, it remains far below the levels seen in late 2024, when consumer confidence was at its peak following the election.

The Long-Term Economic Picture

Looking ahead, economists remain divided on the long-term implications of the recent tariff reductions and the improvement in consumer sentiment.

While the U.S. and China have made significant strides toward de-escalating their trade war, the economic effects of tariffs will likely continue to be felt in various sectors of the economy.

As businesses adjust to the changing trade environment, consumer prices may continue to fluctuate, influencing household spending and overall economic growth.

Some economists, like Samuel Tombs of Pantheon Macroeconomics, have expressed skepticism about the reliability of the consumer sentiment survey, pointing out the low response rate.

Tombs referred to the survey as “a broken compass,” suggesting that the results may not fully reflect the true state of consumer confidence.

Conclusion: A Complex Economic Landscape

While June’s improvement in consumer sentiment provides a glimpse of optimism, significant challenges remain.

Consumers continue to worry about inflation, the future trajectory of the economy, and the impact of tariffs on their everyday lives.

As oil prices rise and geopolitical risks remain high, it is unclear how sustainable this improvement in sentiment will be.

The U.S. economy’s outlook for the remainder of 2025 will depend on a complex interplay of factors, including trade policies, inflation expectations, and the broader geopolitical landscape.

With the Federal Reserve maintaining a cautious stance and global trade relations evolving, consumers will need to navigate an uncertain economic environment in the coming months.

The trajectory of consumer sentiment, particularly in the face of ongoing tariff concerns, will continue to be a key indicator for economists and policymakers alike as they work to shape the future of the U.S. economy.