Emerging from a period marked by unprecedented inflation, Americans find themselves once more bracing for an uptick in prices. Indicators closely monitored by the Federal Reserve reveal that anticipation of future inflation is on the rise. Despite these growing expectations, the latest data—pulling from sources like the University of Michigan’s consumer survey and various market cues—doesn’t yet indicate that prices are spiraling uncontrollably.

However, this increase is noteworthy enough to capture attention, adding another layer of uncertainty to economic forecasts already complicated by President Trump’s unpredictable policies on trade, immigration, and taxes. The latest from the Conference Board highlights a significant drop in consumer confidence this February, with inflation worries climbing as people grow concerned about climbing egg prices and possible tariff effects.

Continued anxiety over these issues could spell political trouble for President Trump, who campaigned with vows to keep prices in check. On the other hand, this scenario presents an added hurdle for Federal Reserve policymakers, who are already expressing concern about stalled progress in curbing inflation.

Jonathan Pingle, formerly of the Fed and now a leading economist at UBS, notes, “This trend in inflation expectations is the kind of shift that can leave a policymaker uneasy. The last thing we want is for these expectations to climb to a point that complicates the Fed’s goal of steering inflation back to a two percent target.”

For many economists, managing inflation expectations is key to managing inflation itself. This is because how consumers and businesses perceive future prices can influence today’s economic decisions. Workers may demand higher wages to match expected cost increases, while businesses might preemptively raise prices if they foresee higher material and labor costs, complicating the Fed’s challenge of taming inflation.

This scenario recalls the inflationary spiral of the 1960s and 1970s, a period of persistently high inflation that cemented expectations of continued price hikes. It was only after drastic interest rate hikes and a resultant severe recession that the Fed could regain control.

In contrast, when inflation began accelerating rapidly in 2021 and 2022, many experts feared a repeat of those challenges. However, this time, expectations were surprisingly subdued, rising just slightly and dropping quickly once inflation started to ease. Consequently, the Fed succeeded in lowering inflation without triggering a significant rise in unemployment.

According to economist Laurence Ball from Johns Hopkins University, “The crucial difference between the experiences of the 1970s and the 2020s was that inflation expectations, despite the actual rise in inflation, only edged up a bit.”

Nowadays, there are hints that Americans see higher inflation on the horizon. Persistent upward pressure from things like egg prices and energy costs, along with concerns over tariffs, have nudged consumers to expect inflation levels not seen in over a year, per the University of Michigan survey.

From an economist’s perspective, it’s the jump in long-term inflation expectations in February that’s particularly concerning. This increase, cutting across various demographics, suggests a broad-based apprehension about inflation.

Although such expectations have fluctuated before, they currently show a notable partisan divide—Democrats reporting rising expectations since the last election, whereas Republican views have eased. Despite this, the growing caution among political independents—which emphasizes their typically steady economic outlook—adds weight to these findings, as noted by Joanne Hsu, who oversees the Michigan survey.

Economists recognize that the longer inflation remains high, the more likely consumers and businesses are to adjust their expectations permanently. The risk is that expectations could become “unanchored,” leading to diminished confidence that inflation will revert to the two percent target, a scenario currently appearing more likely than it did a few months back. Inflation’s stagnation, combined with concerns over President Trump’s policies, fuels these doubts.

Richard Clarida, formerly Vice Chair of the Fed and now with Pimco, advises, “Though data suggest expectations are stable, it would be imprudent for the Fed to assume that stability is a given.”

As Fed officials downplay alarm over inflation expectations for now, Austan Goolsbee of the Chicago Fed acknowledges the recent Michigan survey wasn’t ideal, yet notes it reflects just a small data set. According to Goolsbee, “It takes at least two to three months of data for a trend to have significant weight.”

Similarly, Alberto Musalem from the St. Louis Fed emphasized to reporters that inflation expectations remain manageable, viewing Michigan’s data as just one indicator among many.

Despite these reassurances, the Fed has halted further interest rate cuts temporarily. Officials await more definitive inflationary trends and also want a clearer picture of how Trump’s policies might impact prices, employment, and overall growth.

Minutes from their last policy meeting underscored expectations of some price impacts from Trump’s strategies, though the Fed’s response remains debated. Fed Governor Christopher J. Waller suggests the central bank might overlook the effects of tariffs, assuming these lead only to temporary price hikes that keep broader expectations anchored.

Charles Evans, retired president of the Chicago Fed, cautions that such a strategy, reminiscent of dismissals during the 2021 inflation surge, could be risky.

Evans shared his concern over rising inflation expectations, noting, “It makes me a little nervous, particularly as companies may be more prone to pass on higher costs,” anticipating the Fed to maintain a cautious approach to cutting rates this year.

John Roberts, formerly of the Fed and now at Evercore ISI, points out that any lack of improvement in expectations might prompt the Fed to avoid cuts altogether this year. He sees hints of an “unanchoring” already occurring.

Following the latest Michigan data, LHMeyer’s economists delayed their forecasted timeline for the next Fed cut, moving it from June to September.

Another looming risk is any potential erosion of Fed independence by the Trump administration, which could undermine confidence in its ability to manage inflation, thereby exacerbating expectations.

President Trump recently sought to extend his influence over the Fed, part of a wider attempt to control independent agencies. Although his executive order focuses on the central bank’s Wall Street oversight, its broad scope has sparked concerns about future encroachments.

As economist Laurence Ball warns, “This scenario is particularly dangerous; just the specter of political interference could complicate the Fed’s efforts. The mere threat of the administration’s takeover could be enough to unsettle inflation expectations.”