Fed Chairperson Recommendation

Consumer indicators

Consumer confidence

Consumer confidence is an economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Consumer confidence is expressed through their activities of savings and spending. and measured by the consumer confidence index (CCI). If consumers are uncertain about the economy, they will buy less, and the economy will slow further. If consumer confidence increases, then the economy will grow. Generally consumer confidence is high when interests and unemployment rates are low.

The reason why consumer confidence is important to macroeconomics is the fact that consumers are responsible for two-thirds of the nation's economic activity, or the gross domestic product (GDP). If the Consumer Confidence Index is trending upwards, it is likely for stocks to go higher as well. Yet once the Confidence gets too high, the excessive demand it is creating could result in inflation as firms might not be able to meet demand. That in return could lead the Federal Reserve to raise interest rates. 

"As the labour market has strengthened, so has US consumer spending. However with wage growth remaining subdued, there are few signs of runaway spending growth, with consumers staying in cautious mood"

The CCI, however, is a lagging indicator, so whatever the survey says, remember that it doesn't tell us what is going to happen, but what has happened and if it can be expected to continue.

As consumer confidence rises, it means consumers are more likely to and will spend more money on goods and services. Therefore in the short run the aggregate demand in the country will rise, and shift to the right. the new point at which producers will be able to supply the goods is going to be at a higher price level. When the consumer confidence keeps rising and people demanding more it can lead to inflation as too much pressure is put on producers to fill the demand in the short run. Therefore, too much consumer confidence leads to too much demand and shortage in supply leading to rapid increase in prices causing inflation.