March 2025 — Strength Meets Unease

March 2025 shows an economy that is healthy on the surface but beginning to reveal subtle signs of stress. The unemployment rate rose slightly to 4.2%, still around the natural rate of approximately 4.25%. This keeps labor market conditions solid, though the upward nudge warrants attention in the context of other trends.

Inflation moved closer to the Fed’s target, falling 0.4% to 2.4%, with core inflation down 0.3% to 2.8%. On the surface, this is encouraging: prices are stabilizing, and supply-side pressures, such as tariffs, have not yet pushed costs higher. Yet, the stagnation in personal consumption expenditures — which grew 0% in March — signals that households are holding back on spending. Consumers appear cautious, perhaps reacting to political uncertainty or earlier months of tightening financial conditions.

The more concerning story emerges in expectations and sentiment. One-year-ahead inflation expectations rose by 0.5% to 3.6%, and the Consumer Confidence Index plunged from 64.7 to 57.0. While expectations are not yet dangerously unanchored, the combination of falling confidence and rising expected inflation suggests that households are starting to question the stability of the economy. If these trends continue, they could weaken the effectiveness of demand-management policies and risk creating self-fulfilling downturns in the coming months.

Overall, March presents a mixed picture. On traditional metrics like unemployment and inflation, the economy remains in healthy shape, edging closer to balance. But the signals from households — muted consumption, falling confidence, and creeping expectations — suggest that caution may be taking hold. Strength exists, but uncertainty is growing, and it will be critical to watch whether this tension between economic fundamentals and consumer sentiment begins to influence spending and overall activity in the months ahead.