Trump’s Trade Wins Reignite Consumer Confidence But The Fed Still Won’t Cut Rates – Financial Freedom Countdown

After months of slipping sentiment, American consumers are suddenly more optimistic. Confidence jumped in May, bolstered by easing trade tensions and brighter expectations for the economy. But despite this improvement, the Federal Reserve is holding firm on interest rates as it waits for more clarity on inflation and growth.

Confidence Jumps After Five-Month Slide

Consumer confidence rebounded sharply in May, rising 12.3 points after five consecutive months of decline, according to the Consumer Confidence Index released Tuesday by The Conference Board. The rebound was broad-based, cutting across age groups, income brackets, and political affiliations, with Republicans showing the greatest optimism.

Stephanie Guichard, an economist at The Conference Board, said the increase was already visible before the U.S.-China trade truce on May 12, but “gained momentum afterwards.” Americans expressed renewed optimism about the job market, business climate, and their own income prospects.

A Temporary Trade Truce Buoys Sentiment

On May 12, the United States and China agreed to a temporary ceasefire in their escalating trade war. Tariffs on Chinese imports were reduced from 145% to 30%, and China lowered its duties on American goods from 125% to 10%. China also eased certain non-tariff restrictions.

The détente, which followed Trump’s dramatic April 2 “Liberation Day” tariff rollout, brought welcome relief to nervous consumers and businesses.

Many Americans, while still wary of inflation and higher prices due to tariffs, now see the potential for improved trade relations to support the broader economy.

Expectations Surge But Recession Fears Linger

The Expectations Index; a forward-looking measure of income, business, and job outlook jumped nearly 17.5 points to 72.8 in May. That’s a significant gain, but still below the 80-point threshold that typically signals confidence in avoiding a recession.

While more consumers now believe business conditions and incomes will improve over the next six months, the numbers don’t yet point to full economic recovery or stability.

Uncertainty about future tariffs, inflation, and interest rates continues to cloud the outlook.

Spending Intentions on the Rise

Consumers are not just feeling more confident; they’re also planning to spend more. The May data showed increases in plans to purchase homes, vehicles, vacations, appliances, and electronics.

The boost in planned expenditures came largely after the May 12 trade announcement, suggesting the policy shift may be driving real economic behavior.

This uptick in discretionary spending could help support growth in the short term, particularly in the consumer goods and travel sectors.

Fed Stays Put Amid Political Pressure

Despite the rebound in sentiment and a cooler inflation reading from April; the same month Trump’s new tariffs took effect, the Federal Reserve is not budging on interest rates.

Fed officials are divided on whether tariff-related price hikes will be temporary or more persistent, and are reluctant to make premature policy shifts.

President Trump has repeatedly urged the Fed to cut rates, including during a private meeting with Fed Chair Jerome Powell Thursday.

But Powell and his colleagues have emphasized that any changes to monetary policy will depend entirely on economic data and the evolving outlook.

Inflation Still a Wild Card

Inflation data for April showed signs of cooling, but Fed officials remain concerned that price pressures could rise again later in the year.

Tariffs, even when scaled back, have the potential to lift costs across a wide range of goods. The central bank is weighing whether any inflation that emerges from trade policy will be a one-time shock or a more lasting trend.

The White House has urged the Fed to ignore tariff-induced inflation, framing it as temporary.

But many at the Fed are not convinced. Until the picture becomes clearer, they are expected to hold the line on interest rates.

Trump’s Tariff Strategy Faces Mixed Reviews

While the May truce helped consumer sentiment, economists remain divided on the long-term effects of Trump’s aggressive tariff policy. Some argue it has forced trade partners to the negotiating table, while others say it has created uncertainty that could dampen investment and slow growth.

The mixed results are visible in business behavior. Many firms remain hesitant to commit to large investments, given the unpredictable nature of the White House’s trade agenda. This caution could limit the benefits of improved consumer sentiment if business confidence doesn’t follow suit.

Optimism with a Caveat

May’s jump in consumer confidence is a positive sign, especially given the economic headwinds of recent months. The easing of trade tensions with China and rising expectations for jobs and income are welcome news.

But the rebound comes with caveats. The Fed remains cautious, inflation risks are unresolved, and business investment remains tepid.

While consumers are feeling better, the road to lasting economic stability is still uncertain.

For older Americans, especially those nearing or in retirement, these mixed signals including recession indicators are worth watching closely. Staying informed and staying diversified may be more important than ever.

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