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More Americans are starting to brace for higher prices as President Trump’s policies begin to take effect.
- Feb. 25, 2025Updated 10:36 a.m. ET
Fresh off the worst inflation shock in decades, Americans are once again bracing for higher prices.
Expectations about future inflation have started to move up, according to metrics closely watched by officials at the Federal Reserve. So far, the data, including a consumer survey from the University of Michigan and market-based measures of investors’ expectations, does not suggest that price pressures are perceived to be on the verge of spiraling out of control.
But the recent jump has been significant enough to warrant attention, stoking yet more uncertainty about an economic outlook already clouded by President Trump’s ever-evolving approach to trade, immigration, taxation and other policy areas. On Tuesday, a survey from the Conference Board showed that consumer confidence fell sharply in February and inflation expectations rose as Americans fretted about the surging price of eggs and the potential impact of tariffs.
If those worries persist, it could be a political problem for Mr. Trump, whose promise to control prices was a central part of his message during last year’s campaign. It would also add to the challenge facing policymakers at the Fed, who are already concerned that progress against inflation is stalling out.
“This is the kind of thing that can unnerve a policymaker,” Jonathan Pingle, who used to work at the Fed and is now chief economist at UBS, said about the overarching trend in inflation expectations. “We don’t want inflation expectations moving up so much that it makes the Fed’s job harder to get inflation back to 2 percent.”
Most economists see keeping inflation expectations in check as crucial to controlling inflation itself. That’s because beliefs about where prices are headed can become a self-fulfilling prophecy: If workers expect the cost of living to rise, they will demand raises to compensate; if businesses expect the cost of materials and labor to rise, they will increase their own prices in anticipation. That can make it much harder for the Fed to bring inflation to heel.
That’s what happened in the 1960s and 1970s: Years of high inflation led consumers and businesses to expect prices to keep rising rapidly. Only by raising interest rates to a punishing level and causing a severe recession was the Fed able to bring inflation fully back under control.
Expected rate of inflation in the next five years, by political party
