Consumer sentiment data: Past rate increases may test resilience

As uncertainty looms over potential Federal Reserve rate cuts, investors are closely monitoring the impact on consumers. US Bank Wealth Management SVP Lisa Erickson joins Yahoo Finance Live to discuss consumer resilience amid ongoing economic challenges.

Erickson emphasizes the resilience exhibited by consumers thus far, but she notes that investors question how long it can be maintained. She acknowledges that consumers have done "quite an amazing job" in navigating the uncertainties surrounding inflation, with lower-income consumers "starting to show some signs of strength."

Erickson underscores the need to see "greater evidence" of inflation cooling before considering rate cuts, stating that the inflation reports "are important." However, she notes that the hotter-than-expected prints indicate that the disinflationary trend has not yet "passed us," suggesting that more time and data are needed to assess the trajectory of inflation.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

RACHELLE AKUFFO: Consumer sentiment from the University of Michigan falling month over month, but February retail sales rebounding. So that's signaling something of a consumer that's staying strong despite higher costs. Our next guest thinks the consumer could make or break the market.

To tell us more, we have Lisa Erickson from US Bank Wealth Management Public Markets Group here joining us. Good to see you here. So as we try and get a gauge of the consumer here, especially since when the consumer is feeling confident and they want to spend more, that increases business activity, what are you seeing, though, from the consumer as we wrap up this very busy week of data here?

LISA ERICKSON: Well, Rachelle, to your point, the consumer has really remained very resilient. And again, while we had some decent retail sales, what we're really looking for going forward is how long that can maintain, because the consumer has really done quite an amazing job, really, in the face of tightening monetary policy and elevated inflation.

And when we look some sectors of consumers, what we're seeing so far is that the lower income cohort is starting to show some signs of strain, but the middle and the affluent segments are holding their own. And so, really, that's causing this overall picture to remain solid so far.

But again, even though we have the possibility here of the Fed looking at lowering rates here over the next few months, we want to continue to look at that horse race between, again, the environment and the lagged impact of past rate increases on the consumer.

RACHELLE AKUFFO: Indeed. And we're still seeing that working through the economy here. But as the consumer does continue to spend, that's also adding some pressure upswing on inflation, as well, there.

So we did see now some people were hoping that this would be the end of what we'd seen, we were going to continue to see a downtrend in inflation. That February data throwing a bit of a wrench in things here. How should investors be viewing it, though? Because we know that the Fed takes a 3 to 6 to 12 month look when they're looking at this inflation data.

LISA ERICKSON: Well, certainly, we don't want one month's numbers to throw us off. But the Fed has indicated, on the other hand, that they want to continue to see greater evidence of that disinflation trend continuing for them really to move from this tighter monetary policy to possibly loosening. And so the numbers, as they come out month by month, are important.

And we got a little bit of a mixed bag this week, to your point. The prints, both the consumer price index and the producer price index, came in hotter than people expected. But we did see some cooling for example on the consumer price index and that services component, which really has had a lot of demand behind it. So we don't think, necessarily, that disinflation trend is past us. But we will want to continue to see the rate of progress, because that is going to influence, again, when that Fed can loosen up.