University of Michigan consumer confidence index remains elevated, Fed likely to cut rates next week

U.S. consumers continue to focus on job and income growth, both of which remain favourable. Inflation expectations continue to be muted, which underpin a likely Fed rate cut next week.

The University of Michigan consumer confidence index remains elevated at a level of 95.5. The recent news headlines underlines risks to the outlook, but consumer stay focused on income and job prospects, noted Wells Fargo in a research report. Admittedly, consumer sentiment has dropped from its peak, but is still at levels in line with strong consumption growth.

Longer-term inflation expectations, which are closely monitored by the Fed, matched a record low in October. Particularly against a slowing growth backdrop, Fed officials are worried that low inflation expectations are becoming entrenched.

“As such, slowing GDP growth and muted inflation pressures give the Fed the cover to cut interest rates–which we expect it will at next week’s FOMC meeting”, added Wells Fargo.