A closely watched measure of consumer confidence nosedived in October as Americans downgraded their assessments of personal finances and inflation.

A preliminary reading of the University of Michigan’s consumer sentiment index fell by 7.5% to 63.0 in October, well below the 67.4 figure analysts expected. It was the lowest reading in five months.

The consumer sentiment index is a monthly survey gauging Americans’ attitudes toward personal finances, the economy, and inflation. Lower readings imply that consumers are less optimistic about their financial position.

According to Joanne Hsu, the director of the University of Michigan’s consumer surveys, all demographics experienced a setback in confidence due to concerns about inflation. As a result, assessments of personal finances plunged by about 15% compared to September.

“Year-ahead inflation expectations rose from 3.2% last month to 3.8% this month,” Hsu said. Long-run inflation expectations also increased.

Although the U.S. economy has gotten over the “peak inflation” hump, it’s brought little reprieve to Americans. Even after 11 rate hikes, the Fed doesn’t think it’ll get the inflation genie back in the bottle anytime soon.

How long until inflation is manageable?

The Fed targets long-term inflation at 2% because it says that’s the level where “households and businesses can reasonably expect inflation to remain low and stable.”

The catch? According to the Fed’s own projections, inflation won’t get back to that coveted level until 2026.

The other catch? Experts don’t really know why the Fed still maintains its 2% target.

“If people sat down today, they would not come up with 2%; they would come up with 3% to 4%,” Mohamed El-Erian, the chairman of Gramercy Funds, told Bloomberg.

Harvard professor Kenneth Rogoff agrees. “Back in the day, they should’ve said 3% instead of 2%,” he said.

The problem with maintaining a 2% target during an inflationary spike is the Fed has to keep raising interest rates to bring cost pressures down. And that’s putting even more pressure on cash-strapped Americans.

Higher rates are taking a toll

Consumer financing is a lot more expensive today than it was over a year ago. Fewer Americans qualify for car loans, interest rates on credit cards are through the roof, and millions can no longer afford a home.

Consumer spending has remained robust thanks to pandemic-era savings. But that could be coming to an end.

“The bite is starting now,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, in reference to rising borrowing costs and worsening economic conditions.

Purchasing a home or automobile has become “completely unaffordable for the typical American household because you’re mixing the higher borrowing costs with the high prices,” according to Mark Zandi, chief economist at Moody’s Analytics.

Compounding this problem is the fact that consumers are carrying record debt levels, including more than $1 trillion in credit card balances.

It’s no surprise that six in ten Americans say higher interest rates are hurting their finances, according to a recent study by Allianz Life Insurance.