Consumer confidence falls as Fed rate hikes and stubborn inflation weigh on Americans' outlook for the economy

• US consumer confidence declined in October after back-to-back months of gains, according to the Conference Board.
• The group's Consumer Confidence Index slumped from 107.8 to 102.5 from the previous month.

After back-to-back monthly gains, US consumer confidence declined in October by more than expected as uncertainty around the Federal Reserve's interest rate hikes and persistent, high inflation continue to drag on Americans, according to the latest report from the Conference Board.

The Conference Board's Consumer Confidence Index slumped from 107.8 to 102.5 from the previous month. Bloomberg economists had forecasted a smaller dip to 105.9.

"Consumers' expectations regarding the short-term outlook remained dismal," Lynn Franco, senior director of economic indicators at the Conference Board said Tuesday. "The Expectations Index is still lingering below a reading of 80 — a level associated with recession — suggesting recession risks appear to be rising."

The report noted inflationary pressures are set to pose further obstacles to consumer confidence and spending, which could drag on retail demand as the holiday season kicks off.

"Notably, concerns about inflation — which had been receding since July — picked up again, with both gas and food prices serving as main drivers," Franco said.

Still, Americans' intentions to buy homes, autos, and big-ticket appliances all rose, according to the report.

Meanwhile, traders expect the Fed's hawkish monetary policy to continue, with markets largely pricing in another 75 basis point rate hike at the November meeting. Fed futures peg the chance of a rate hike of that size at 95%.

Tighter policy has stifled demand but it hasn't yet resulted in cooling inflation, as the core Consumer Price Index rose 6.6% — above economist forecasts — in the year-over-year period in September, the Bureau of Labor Statistics announced earlier this month.

That print marked the fastest price growth since 1982, and an uptick from the prior reading.

With pandemic-era stimulus evaporating and interest rates climbing, households are seeing their savings dwindle ahead of a looming economic downturn. An October Bloomberg report concluded that a US recession is effectively certain in the next 12 months.