U.S. dollar buyers were clearly displeased with yesterday's data showing that the Conference Board consumer confidence index in the U.S. fell by 0.7 points to 93.1 in May—slightly worse than the consensus forecast of 92.0 and marking the third consecutive month below the 100 mark. This data coincided with the record low of the University of Michigan index, which was published last week. All of this indicates that the American consumer is feeling increasingly worse, and there is nothing surprising about that.

The most alarming component is the current conditions index, which dropped by 3.2 points to a three-month low. The proportion of consumers reporting sufficient job availability fell to its lowest level since 2021—this is one of the most sensitive leading indicators of the real state of the labor market. While official employment data remain stable, such a deterioration in perception traditionally precedes a real cooling period by several months.

The report states that two-thirds of respondents noted a reduction in spending due to rising prices. The picture is clear: people are buying less, delaying major purchases, and switching to cheaper alternatives. Plans to purchase cars, homes, and major household appliances have decreased. Rising gasoline prices hit low-income households the hardest—they disproportionately spend a larger share of their budget on fuel and virtually do not hold stocks, which are currently hitting records. The increase in mortgage lending also does not instill confidence in Americans regarding the future.

This creates a telling contradiction. Nearly 55% of respondents expect stock prices to rise in the coming year—the highest since the end of 2024. The expectations index for the next six months has reached a peak this year. In other words, people are simultaneously cutting back on spending today while believing in a rising stock market tomorrow. This clearly reflects the divide economists are increasingly discussing: the growth of the S&P 500 no longer feels like a growth in wealth for most Americans—it remains a story for those who have a portfolio and a good supply of cash.

For the Federal Reserve, this report does not fundamentally change the outlook. Consumer spending remains stable—partly due to tax refunds. However, the combination of declining confidence, worsening perceptions of the labor market, and persistently high inflation expectations leaves Kevin Warsh in the same trap as his predecessor: raising rates in the face of a weakening consumer is painful, but not raising rates when inflation is above 3% means losing market confidence.