The Dow Jones Industrial Average (DJIA) pulled back on Friday after reaching record highs earlier this week. Weak consumer sentiment data and a looming Federal Reserve rate decision have investors reassessing market direction.
The Dow Jones shed some of its midweek gains on Thursday, slipping below the 46,000 mark after briefly hitting record levels. September’s University of Michigan (UoM) Consumer Sentiment Index revealed a sharper-than-expected decline, while long-term inflation expectations edged higher.
The Federal Reserve (Fed) is widely anticipated to deliver a 25-basis-point interest rate cut on September 17, supported by softening labor market indicators despite near-term inflation pressures. The Fed will also release an updated Summary of Economic Projections (SEP), offering investors a dense set of economic insights alongside the rate decision.
The DJIA fell 0.4% on Friday, testing 45,900 after Thursday’s historic close above 46,000. Equities have shown strong bullish momentum in September, a month that has historically underperformed. Major indexes remain broadly higher for the week, with the Dow gaining more than 500 points from Monday’s opening levels and finishing the week up over 1.1%.
consumer sentiment continues to sour amid tariff concerns
The UoM Consumer Sentiment Index dropped to 55.4 in September from 58.2 in the previous month. While the outlook on durable goods improved, most other components fell, particularly among lower- and middle-income households. Survey respondents cited concerns about business conditions, the labor market, hiring, and inflation. Over 60% of participants mentioned tariffs and their negative impact on US consumers without prompting. According to UoM Surveys of Consumers Director Joanne Hsu,
“Trade policy remains highly salient to consumers… Still, sentiment remains above April and May 2025 readings, immediately after the initial announcement of reciprocal tariffs.”
US consumers remain cautious on inflation, with 1-year expectations steady at 4.8%. Five-year inflation expectations increased for a second consecutive month to 3.9% in September, but remain below the April peak of 4.4% seen after the tariff announcements.
Fed expected to cut rates and update SEP
The Federal Open Market Committee (FOMC) is widely expected to open a rate-cutting cycle next week with a 25-basis-point reduction. Despite lingering inflation concerns, deteriorating labor and hiring data have positioned the Fed toward easing. The upcoming SEP will provide clarity on whether officials share market expectations of three additional rate cuts by year-end.
