University of Michigan Confidence Remains Weak with Inflation Expectations Rising

The final reading for the May University of Michigan consumer confidence survey barely budged from the 28 year low set in the preliminary reading. The actual final reading is 59.8 versus the preliminary call of 59.5. The improvement was due to a pick up in the current conditions subcomponent, which rose to 73.3 from 71.7 earlier. Unfortunately, expectations for the future outlook continued to erode, falling to 51.1 from 51.7 in the preliminary review. The headline index has fallen almost 20 points, or 24%, since January when it was at 78.4. Inflation expectations held steady for the next year at 5.2% (highest level since 1982), after rising from 4.8% the prior month and 3.4% back in January. Five year inflation expectations eased up a tenth to 3.4%. This is a new high going back to 1995 The Fed tends to prefer the University of Michigan inflation expectations measures over other indicators because they use a median statistic, and not an average or mean. This means that extreme responses have less impact keeping the movement more stable. The Fed is likely to become even more concerned about inflation expectations following today's data. The weak confidence reading suggests consumer spending, a major support for the economy, will remain weak. The Fed will not like to see that inflation expectations are erupting from their contained range, which makes monetary policy more difficult for them. Do they fight inflation or falling unemployment?