In a decidedly unwelcome development reminiscent of a fateful Friday in June of 2022, University of Michigan inflation expectations at the five-year point registered 3.2% in the preliminary read for May.

That was a marked uptick from 3% in April and matched the highest reading since 2008.

Context is important. Recall that it was a 3.3% preliminary read on longer-term University of Michigan inflation expectations, accompanied by a record-low headline sentiment print, which tipped the scales in favor of the first 75bps rate hike from the Fed 11 months ago.

Those prints (the highest long run inflation expectations since 2008 and the dismal read on sentiment) were insult to injury coming as they did just an hour and a half after a highly disconcerting inflation report. The next business day (so, Monday, June 13, 2022), Nick Timiraos hinted at the Fed’s inclination to raise rates by three quarters of a point, triggering a massive front-end selloff.

Fast forward a year, and it’s well and truly “déjà vu all over again.” June 2022’s 3.3% longer-term inflation expectations reading was eventually revised lower, which makes May 2023’s 3.2% stand out as the highest of the pandemic-era inflation.

That isn’t good. At all. And it won’t go unnoticed at the Fed. This series is (ironically) much more important than the NY Fed consumer survey.

“After two years of relative stability, long-run inflation expectations rose to their highest reading since 2011,” survey director Joanne Hsu said Friday, noting that more than half of consumers said the government “is doing a poor job with economic policy,” the worst reading since last summer, when inflation peaked.

At the same time, sentiment deteriorated markedly. The headline print, 57.7, was the lowest since November.

The expectations gauge fell dramatically, from 60.5 to 53.4, down 12% MoM and, notably, lower on a YoY basis as well.

“Consumer sentiment tumbled 9% amid renewed concerns about the trajectory of the economy, erasing over half of the gains achieved after the all-time historic low from last June,” Hsu went on, adding that although the incoming macro data isn’t indicative of a recession, the prevalence of negative news flow, along with debt ceiling worries, has consumers on edge.

She delivered a stark warning. “Throughout the current inflationary episode, consumers have shown resilience under strong labor markets, but their anticipation of a recession will lead them to pull back when signs of weakness emerge,” she said. “If policymakers fail to resolve the debt ceiling crisis, these dismal views over the economy will exacerbate the dire economic consequences of default.”

Although the debt ceiling standoff is likely to be resolved, and while this week’s data suggested price pressures are receding, expectations matter, and they matter a lot. Now, they’re headed in the wrong direction again, both in terms of inflation and overall sentiment.