A very old but still relevant reality comes through in U.S. polling data: once inflation expectations take hold, they can reinforce themselves.
Forty-one percent of people are worried that they won’t be able to afford groceries in the coming months, up sharply from 24% in April. This isn’t just simple price sensitivity—it’s a collapse in confidence. Multiple pressures are stacking up—food, gasoline, housing, and healthcare—leaving ordinary households’ cash flow stretched extremely thin.
Historically, this kind of anxiety often precedes a real contraction in consumer behavior. Similar public-opinion turning points occurred before the early-1980s Volcker rate-hike cycle and ahead of the 2008 subprime mortgage crisis. Once public pessimism crosses a certain threshold, policymakers’ room for maneuver can shrink dramatically.
Nearly eight in ten believe the economy is in worse shape, a figure already approaching the typical level seen before a recession. The Federal Reserve is not dealing with the textbook Phillips curve right now, but with real social pressure and political risk. Whether to cut rates is no longer just a technical judgment—it’s a trade-off in political economy.
From a commodities perspective, fluctuations in food and energy prices directly affect the inflation-expectations anchor. If people continue to feel the pressure of living costs, overall economic confidence may not recover even if core CPI eases. Once these expectations become entrenched, the $USD’s real purchasing power and the stability of the $exchange rate will both face long-term drag.
As the old saying goes: inflation is a tax on the poor, while deflation is a tax on the rich. The question now is: what policy tools are left in the toolbox?
Forty-one percent of people are worried that they won’t be able to afford groceries in the coming months, up sharply from 24% in April. This isn’t just simple price sensitivity—it’s a collapse in confidence. Multiple pressures are stacking up—food, gasoline, housing, and healthcare—leaving ordinary households’ cash flow stretched extremely thin.
Historically, this kind of anxiety often precedes a real contraction in consumer behavior. Similar public-opinion turning points occurred before the early-1980s Volcker rate-hike cycle and ahead of the 2008 subprime mortgage crisis. Once public pessimism crosses a certain threshold, policymakers’ room for maneuver can shrink dramatically.
Nearly eight in ten believe the economy is in worse shape, a figure already approaching the typical level seen before a recession. The Federal Reserve is not dealing with the textbook Phillips curve right now, but with real social pressure and political risk. Whether to cut rates is no longer just a technical judgment—it’s a trade-off in political economy.
From a commodities perspective, fluctuations in food and energy prices directly affect the inflation-expectations anchor. If people continue to feel the pressure of living costs, overall economic confidence may not recover even if core CPI eases. Once these expectations become entrenched, the $USD’s real purchasing power and the stability of the $exchange rate will both face long-term drag.
As the old saying goes: inflation is a tax on the poor, while deflation is a tax on the rich. The question now is: what policy tools are left in the toolbox?