Dive Brief:

• Consumer sentiment inched up this month despite persistent anxiety over inflation and weakness in the job market, the University of Michigan said Friday.
• An index of consumer sentiment rose to 52.9 from 51 in November, the university said, citing survey results. Expectations for inflation in a year fell to 4.2%, the lowest level in 11 months but well above the 3.3% in January.
• “Sentiment remains nearly 30% below December 2024, as pocketbook issues continue to dominate consumer views of the economy,” Joanne Hsu, the university’s consumer surveys director, said in a statement. “A solid majority of 63% of consumers still expects unemployment to continue rising during the next year,” she said.

Dive Insight:

Recent data have likely done little to ease consumer worries. The unemployment rate rose last month to 4.6%, the highest level in four years, as government layoffs announced in the spring took force, the Bureau of Labor Statistics said Tuesday. The jobless rate in September was 4.4%.

Meanwhile, inflation slowed to a less-than-forecast 2.7% annual pace last month from 3% in September. Yet a six-week gap in data collection because of the federal government shutdown likely crimped the data on rents and several other prices.

“The data were distorted in some of the categories, and that pushed down the CPI reading probably by a tenth [of a percentage point] or so,” New York Federal Reserve Bank President John Williams said Friday in an interview on CNBC. “It's hard to know” the extent of the distortion, he said.

The so-called core consumer price index, excluding volatile food and energy prices, rose 2.6% last month, the BLS reported Thursday. It calculated annual inflation rates for its report but left blank the monthly price gains for 18 of 21 categories, including energy, services and groceries.

Given the gaps in data, “analysts will continue to look at the 3% [CPI] level in September as the jumping-off point” rather than the November data released Thursday, Douglas Holtz-Eakin, president of the American Action Forum, said Friday in a note. The report on inflation for December, released in January, will “sort out the real trends,” he said.

Household resentment over the persistence of inflation, well above the Fed’s 2% target, has begun to show up in political polling.

“Inflation, and its more nebulous cousin ‘affordability,’ have been the bane of the Trump administration,” according to Holtz-Eakin, chief economist of the President’s Council of Economic Advisers in 2001-2002.

President Donald Trump this year has repeatedly called on the central bank to slash the benchmark interest rate. Fed Governor Stephen Miran, Trump’s former chief economist, has voted against all three of the central bank’s monetary policy decisions this year, calling for half-point reductions instead.

The Federal Reserve, which trimmed the federal funds rate by a quarter-point on Dec. 10 to shore up the labor market, forecasts just one quarter-point reduction in 2026, according to a median estimate by central bank officials.

“I don’t personally have a sense of urgency to need to act further on monetary policy right now, because I think the cuts we’ve made have positioned us really well,” Williams said.

“I want to see inflation come down to 2% without doing undue harm to the labor market,” Williams said. “It’s a balancing act,” he said, referring to the risk that keeping the main rate too high for too long may slow the job market.