The Michigan surveys showed a consumer sentiment index for January which is 64.9. Meanwhile the previous forecast pointed 64.6 and 9% higher than December’s final reading. Consumers indeed feel better about the economy, but the index hits historically low. In a separate report based on Michigan surveys, consumers already cut their spending in December. Then they begin to stash more in savings due to potential recession. A director of the university’s Surveys of Consumers, Joanne Hsu said that there would be many downside risks to sentiment. She argued that around two-thirds of consumers expect an economic downturn next year.
She added that the debt ceiling debate looms ahead. It means that it could reverse the gains in several months. In 2011 and 2013 for instance, the debt ceiling crisis showed a steep fall in consumer confidence. Inflation expectations plunged in the four consecutive months from 4.4% in December to 3.9%. Based on the report, the long-run inflation expectations is at 2.9%. But it hovered around 3% for the past year. In comments, Hsu argued that consumers exhibit uncertainties for both long and short term inflation expectations. This, according to Hsu, signifies the tentative nature of declines.
The U.S. has hit its debt ceiling, so the Treasury Department takes extraordinary measures to pay the government’s bills. Janet Yellen warned that a default is catastrophic. It might cause damage to the US economy, especially the livelihoods of global financial stability. Therefore, if it happened, the borrowing costs would skyrocket. Therefore, if it happened, the borrowing costs would skyrocket. Plus, recession in the U.S. could cause a global financial crisis. She noted that this would absolutely undermine the role of the dollar as a reserve currency.