US consumers are feeling the most optimistic since September 2021

By Bryan Mena, CNN

Washington, DC (CNN) — Inflation’s steady slowdown in recent months has kept Americans feeling optimistic about the future.

Consumer sentiment tracked by the University of Michigan rose 13% in July, the second straight month of improvement, according to a preliminary reading released Friday morning. The index reached its highest level since September 2021.

Meanwhile, the report showed that consumers’ expectations for inflation rates remained at their lowest levels since early 2021. Consumers see inflation rates of 3.4% in the year ahead, and while that’s well below last year’s 5.4% peak, it’s slightly higher than the previous reading.

“The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” said Joanne Hsu, director of the Surveys of Consumers, in a release Friday.

The survey showed a broad improvement across all of its components, “led by a 19% surge in long-term business conditions and 16% increase in short-run business conditions,” according to the release.

Despite the Federal Reserve’s most aggressive rate-hiking campaign in decades, which was put on hold last month, the labor market has held remarkably steady while inflation has slowed, raising the odds of a so-called soft landing — or a scenario in which the Fed succeeds at bringing down inflation without throwing the economy off a cliff. Some Fed officials are confident about that possibility becoming a reality.

“I feel like we are on a golden path of avoiding recession,” Chicago Fed President Austan Goolsbee told CNBC last week.

This story is developing and will be updated.

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