The May University of Michigan Consumer Sentiment reading scored 67.4, a six-month low and far beneath an expected 76.2. Surveys of Consumers Director Joanne Hsu wrote that consumers express "worries that inflation, unemployment, and interest rates may all be moving in an unfavorable direction in the year ahead."

Head of Americas Equities at Janus Henderson Investors Marc Pinto joins Catalysts to give insight into the Consumer Sentiment numbers and what the data signals about the strength of the consumer.

When asked if the Fed cares about consumers' reaction to current inflation, Pinto states, "No, they clearly want it, below 3% and is close to two as possible. I think they're obviously tracking all the different metrics. I think wage inflation, from our vantage point, is one of the most important ones... Obviously, there are parts of inflation that are out of control of the Fed, whether it's energy prices or housing prices, those are more driven by externalities and cyclical factors. But the Fed is trying to manage the mandate between keeping inflation in check, but also keeping the economy on solid footing."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video Transcript

Worsening inflation could be the head wind that stalls market momentum as well.

At least that's what our next guest has to say.

He's joining us now.

We've got Mark Pinto, head of America's Equities at Janice Henderson investors.

Thank you so much for being here with us this morning.

I mean, talk to me about your reaction to this print.

Is this surprising to you.

Well, you know, I think the consumer has definitely been a little bit weaker since 2021 and we've seen spending in discretionary categories.

Uh not quite at the levels that we saw pre um or during the pandemic and coming out of the pandemic.

Um We're definitely seeing examples of consumers trading down, uh looking to buy, you know, better priced items and maybe not getting the premium product where we are seeing the consumers spend a lot of money, however, is in travel and leisure.

It seems that consumers are gravitating more towards experiential spending if you will rather than buying hard goods.

So in general, I think the consumer's health is, is pretty good.

The um the well being index which is a track measure of consumer strength is close to 99.

Um So, you know, the consumer is in decent shape, but they're definitely being selective in terms of where they spend their money.

I'm curious, Mark, you're reading just in terms of the timeline of that rate cut.

Do you still believe, given the fact that we are starting to see some weakening?

I think it's fair to say within the economy, at least the most recent prints that we have seen, is it still too early to cut rates at this point?

Well as you know, the uh the April jobs report was definitely weaker than expected with 100 and 75,000 new jobs.

And, and I think even more important importantly, wage inflation moderated a little bit.

So, um you know, you take that and you can also add the fact that second quarter GDP got revised down to 3.3%.

It does seem like the higher rate policy is starting to impact the economy on the margin.

And from our standpoint that actually um set, sets up the back drop for a possible rate cut and, and honestly can't tell you whether it's going to be June or September.

But uh Chairman Powell was pretty clear in saying that it's a very high bar to take rates higher, which makes me believe the fed is looking more at cutting than um than anything else.

I'm curious then does the fed care that consumers think inflation is staying above 3% that's not the number they want.

No, they clearly want it um below 3% and as close to two as possible.

Um You know, I think they're obviously tracking all the different metrics.

I think wage inflation um from our vantage point is one of the most important ones.

And again, as I said, in the April jobs report, we saw that wage inflation moderated.

Uh obviously there are parts of inflation that are out of control of the FED, whether it's energy prices, um housing prices, those are, you know, more driven by externalities and cyclical factors.

But uh you know, I think, look, the FED is trying to manage the mandate between keeping inflation in check, but also keeping the economy on solid footing.