Is it the great inflation scare of 2025? The financial markets are in panic mode because the American people are freaking out about sticky inflation and the intensification of cost pressures. Wall Street recently suffered its worst day of the year so far, and the market endured a broad-based decline during the Feb. 25 session. To make matters worse, President Donald Trump acknowledged that “inflation is back.” It might be time to scoop up a year-long supply of Pepto Bismol before the local pharmacy or supermarket changes the price tag.
Everyone Is Worried About Inflation
The Conference Board released the February Consumer Confidence Index, and the results were not pretty. In addition to registering its largest monthly decline in nearly four years, the public's inflation expectations rocketed to high levels. The average 12-month outlook rose from 5.2% to 6.2%, reflecting a blend of stickiness and a recent spike in key household items. Oh, hello, eggflation!
This was not an isolated report. The University of Michigan's Consumer Sentiment Index plunged, but the one- and five-year forecasts climbed to 4.3% and 3.5%, respectively.
Both surveys highlighted consternation surrounding Trump's tariff plans. However, as Liberty Nation News has reported, other data indicate that rekindling the inflation flame has been an ongoing trend since the beginning of autumn.
Various Purchasing Managers' Indexes (PMIs), which reflect the prevailing economic direction of the manufacturing and service sectors, have revealed the same development: higher input costs and selling inflation. The Federal Reserve Bank of Dallas Manufacturing Index spotlighted a broad array of companies in Texas fearful of tariffs and their costs. "With some of the new Buy America changes and tariffs incoming, we are looking at closing the business," said a computer and electronic product manufacturing executive. A printing and related support executive noted that tariffs could bolster material costs, "which we will have no choice but to pass along to our customers."
However, business leaders, economists, and market watchers have used one key term: uncertainty.
At the time of this writing, Trump is following through on 25% levies on all steel and aluminum tariffs, 25% import duties on Canadian and Mexican goods, and reciprocal tariffs (it might change). The debate is wide open about whether the new administration’s trade agenda will adversely affect consumers’ wallets and negatively impact businesses’ balance sheets. While prognostications are subject to change, many economic observers agree that inflation is trending upward and shifting away from the Federal Reserve’s 2% target.
How High Can It Go?
In the coming weeks, all eyes will be on the January personal consumption expenditure (PCE) price index, the US central bank’s preferred inflation measure. Additionally, Wall Street will wait with bated breath for the February consumer price index (CPI) and the producer price index (PPI). Early estimates suggest they could inch lower upon release, especially as energy prices tank.
Bank economists have lower expectations than US consumers. However, many of them are beginning to adjust their 2025 forecasts higher, though some have refrained from providing a number. One of the few that did was the Bank of America, which thinks if the readings over the last few months persist, the annual inflation rate could reach 4.6% by the summer. That said, a lot of experts concur that inflation will remain far above the Eccles Building’s 2% goal.
If predicting the future were easy, we would all be millionaires. What we do know, however, is that inflation is sticky and stubborn. The Atlanta Fed's sticky-price CPI — a weighted basket of items that adjusts prices relatively slowly — rose 4.9% in January. Core sticky-price CPI, which removes the volatile energy and food components, rose at an annualized pace of 5.1% last month.
Trump has attributed the recent uptick to the previous regime. "Inflation is back. No, think of it: Inflation’s back. And they said, ‘Oh, Trump,’ and I had nothing to do with that," the president said in a recent Fox News interview. Indeed, his predecessor left various parting gifts that would be challenging to reverse. The US government went on a borrowing binge, the money supply soared every month in 2024, and the Fed likely cut interest rates prematurely. The White House is behind the eight ball.
Former Fed Gov. Kevin Warsh, the likely successor to Chair Jerome Powell, said it best in a recent interview with RealClearPolitics: “Trump is inheriting a fiscal and monetary mess.”
In a hyper-partisan political environment, the American people do not wish to engage in this blame game. They want to pay less at the pump, save at the grocery store, and dedicate a smaller portion of their income to shelter. Everyone is aware of the tit-for-tat games in daily Washington political theater, which has clouded the truth, especially in the field of economics. Should the recent trends persist, it will be harder for the current administration to keep blaming Bidenomics.
The Great Uncertainty Scare
Wall Street experts purport that uncertainty is the No. 1 thing financial markets detest. Of course, this was the calling card of Trumponomics 1.0 and perhaps a repeat characteristic of the president’s second term. Unpredictability is ostensibly the art of the deal. The legendary Yogi Berra famously said, “It's tough to make predictions, especially about the future.” Is this the great uncertainty scare of 2025? It is anyone’s guess what will happen tomorrow.
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