U.S. Consumer Confidence Hits Six-Month Peak in October

The University of Michigan Consumer Confidence Index in the U.S. reached a six-month high in October. This increase was primarily driven by low interest rates, which made purchasing high-cost items like cars more attractive. The rise in consumer confidence was notably strong among Republicans who were optimistic about their party's prospects in the upcoming presidential election. The index climbed to 70.5, the highest level since April, marking an increase from 70.1 in September. This figure exceeded economists' median forecast of 69.0 and showed an improvement from the preliminary report of 68.9 released two weeks prior.

The rise in confidence was significantly influenced by political leanings. While Republican and independent consumers led the increase in confidence, it declined among Democrats. Confidence among Republicans surged by 7.8%, recording the largest jump since February, and among independents, it rose by 4.1%, reaching its highest level since January. Conversely, confidence among Democrats fell by 1.3%, marking the first decline since July.

According to survey director Joanne Hsu, the anticipation of the November 5 presidential election is significantly impacting consumer expectations. Republicans' confidence strengthened with the belief that their candidate, former President Donald Trump, would defeat Democratic candidate Vice President Kamala Harris. The race is currently quite close, and the percentage of consumers expecting Harris to win dropped from 63% in September to 57%.

Households also balanced their expectations regarding inflation, aligning with the Federal Reserve's efforts to move away from the high interest rates implemented after the pandemic to control inflation. Inflation expectations for the next year remained steady at 2.7% in October, consistent with the September reading and within the pre-pandemic range of 2.3% to 3.0%. Long-term inflation expectations slightly decreased from 3.1% to 3.0%.

The Federal Reserve, which reduced interest rates by 0.5% in September for the first time in four years, is scheduled to meet again shortly after the election. Officials are expected to enact another rate cut, likely at a smaller rate of 0.25%.