Consumer Sentiment Surges as Trump Rolls Back Tariffs

Good evening and welcome to what promises to be an eventful weekend. On Saturday, the U.S. Army will commemorate its 250th anniversary with a festival, fireworks display and military parade in the nation's capital — festivities that are estimated to cost as much as $45 million. That celebration also just so happens to coincide with President Donald Trump's 79th birthday and Flag Day. Across the country, planned "No Kings" protests marking a "day of defiance" against Trump and his administration are expected in about 2,000 locations.

Oh, and don't forget, Sunday is Father's Day. Here's what else is happening on the fiscal and economic front.

Consumer Sentiment Surges as Trump Rolls Back Tariffs

Consumer sentiment surged in June, according to a preliminary reading in a survey by the University of Michigan — the first improvement in six months, suggesting American shoppers enjoyed a fresh burst of optimism as President Donald Trump rolled back some of his tariffs and economic conditions, from the job market to inflation, stayed healthy.

The Michigan index of consumer sentiment climbed 16% from last month after having fallen near a record low. "I think this is a pretty significant sign that the worst-the peak pessimism-is behind us," Tom Simons, chief U.S. economist at Jefferies, told The Wall Street Journal.

Inflation expectations for the coming year plunged to 5.1% from 6.6%, and longer-run expectations edged lower, to 4.1%.

"Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed," Joanne Hsu, the Michigan survey director, said in a statement. "However, consumers still perceive wide-ranging downside risks to the economy. Their views of business conditions, personal finances, buying conditions for big ticket items, labor markets, and stock markets all remain well below six months ago in December 2024."

Worries about Trump's trade war and the economy may have eased some, but they aren't gone. The sentiment index is about 20% below its level from the end of last year, and while inflation has so far defied expectations of a tariff-fueled jump, expectations for price increases are still higher than they were in the second half of 2024.

Economists still expect the impact of the tariffs will become much more visible this summer. "Inflation is very likely going to increase," Marc Giannoni, chief U.S. economist at Barclays, told The New York Times. "It is a question of time, not so much of if."

What's next: Federal Reserve officials are still waiting to see where the economy goes from here. They are expected to hold interest rates steady after a two-day meeting on Tuesday and Wednesday of next week. The University of Michigan's final reading on June consumer sentiment is scheduled to be released on June 27.

Chart of the Day: A CBO Report Card

The Congressional Budget Office estimates that the Republican reconciliation bill currently under consideration in the Senate will add nearly $3 trillion to the national debt over the next 10 years, with $2.4 trillion of that total coming from the bill's provisions and the rest from the added cost of interest payments on the growing national debt. Many Republicans, however, dispute the analysis, with some saying the bill would actually reduce debt and deficits in the long run once a range of factors, including economic growth and tariff revenues, are taken into account. At the same time, they have attacked the CBO directly, questioning its nonpartisan character and accusing it of liberal bias while claiming that its track record is so bad as to be disqualifying.

Along with many other fiscal experts, Jessica Riedl, an analyst at the conservative Manhattan Institute, has defended the CBO's political neutrality and its projections. On Friday, Riedl posted this chart showing the accuracy of the CBO's score of the 2017 tax cuts. "CBO projected post-TCJA revenues with 99.5% accuracy up until the pandemic," she wrote, adding that the pandemic and the resulting massive increase in federal spending affected the economy so dramatically that earlier projections became less relevant.

Riedl added a general note that tax cuts do not pay for themselves, no matter how much Republicans insist that they do, and that even conservative economists have concluded that the GOP reconciliation bill would increase deficits. "Want a better score?" she wrote. "Draft a better bill."

Republican Bill Would 'Modestly' Boost Economy: Analysis

Some Republicans have portrayed the tax cuts that make up the bulk of their reconciliation bill as "rocket fuel" for the economy that would help the legislation pay for itself, but according to a new analysis by a conservative think tank, the boost from that fuel would be quite modest, and nowhere near enough to cover the cost of the legislation.

The analysis by Kyle Pomerleau of the American Enterprise Institute finds that the reconciliation bill approved by the House (which will likely change in the Senate) would boost gross domestic product between 2026 and 2035 by 0.6%, with the boost weakening over time as various tax provisions expire.

The bill is projected to increase hours worked by 0.4% over the 10-year period, expand the capital stock by 0.5% and increase wages by 0.2%.

In terms of revenue, the bill would generate $356 billion over a decade, according to the AEI dynamic analysis, reducing the bill's deficit impact from $2.4 trillion to $2.1 trillion.

"Key takeaway," Pomerleau wrote on social media, "the current version would boost output, but only modestly and definitely not enough for the bill to pay for itself."

Headline of the Week

From The New York Times:

"Trump's Big Bill Would Be More Regressive Than Any Major Law in Decades"

Fiscal News Roundup

• The Senate Gop’s Hard-Liners Are Suddenly Sounding Softer on the Megabill – Politico
• Schumer Cites ‘DEFCON 1’ Scenario for Fate of Clean-Energy Tax Credits – Politico
• US Senate Seeks to Add Expanded Compensation for Nuclear Radiation Victims to Tax Bill – Associated Press
• Senate Judiciary Releases Megabill Text to Bolster Immigration Enforcement, Rein in Judges – Politico
• Graham, Paul Release Competing Border Security Proposals – Politico
• Tax Breaks for 529 College-Savings Plans Expand in GOP Tax Bill – Wall Street Journal
• RFK Jr. Blows Up America's Vaccine Policy – Axios
• How Vaccine Critics Appointed by RFK Jr. Could Limit Access to Shots – Washington Post
• Home Appliances Swept Up in Expansion of Trump Steel Tariffs – Reuters
• CDC: Average Age of US Moms Giving Birth Rises to Nearly 30 – The Hill
• Sweden and the Netherlands Say Before NATO Summit They Will Spend 5% of GDP on Defense – Associated Press
• U.S. Military Won't Perform Law Enforcement at LA Protests, Pentagon Says – Axios
• 6 in 10 Say Military Parade ‘Not a Good Use’ of Government Money: Survey – The Hill

Views and Analysis

• Trump Ripping Up the Free Trade Playbook Comes With $1 Trillion Cost – Shawn Donnan, Eleonora Mavroeidi, Maeva Cousin and Enda Curran, Bloomberg
• Trump’s Big Bill Would Be More Regressive Than Any Major Law in Decades – Emily Badger, Alicia Parlapiano and Margot Sanger-Katz, New York Times
• Trump’s Bill Is Big, But Definitely Not Beautiful – Maya MacGuineas, U.S. News & World Report
• GOP’s Tim Scott Takes Aim at the CBO but Makes Himself Look Bad Accidentally – Steve Benen, MSNBC
• Where’s the Inflation From Tariffs? Just Wait, Economists Say – Colby Smith, New York Times
• How Trump Can Impound Money – Thomas Beck, Wall Street Journal
• Kennedy Has Caused Irreparable Harm to Vaccines – Leana S. Wen, Washington Post