In February, Americans were feeling pretty good about their financial situation. But that was before the Iran war, which threatens to strain household budgets.
A New York Federal Reserve survey released Monday found that consumers expected lower inflation next year, and households overall said this was the case Better off than a year ago. The New York Fed’s monthly consumer expectations survey was conducted February 2-28.
On the same day, the United States and Israel attacked Iran, causing the largest disruption of oil supplies in history. As a result, U.S. crude oil prices rose more than 35% and recently posted the largest weekly increase since futures trading began in 1983.
According to AAA, U.S. oil prices peaked at $119.50 on Monday and the national average price of gasoline topped $3.50 a gallon on Tuesday, up 21% from the previous month.
Although U.S. oil prices fell below $90 a barrel on Monday afternoon and slipped further on Tuesday, they are still well above the near $60 a barrel level they reached at the start of the year.
President Donald Trump posted on Truth Social Sunday evening that a rise in “near-term oil prices” is a “very small price” to pay for “security and peace.”
However, experts say the rise in energy costs has led to longer-term inflation fears.
“Consumers are at risk of suffering from the rise in oil prices, which has already added 50 cents to the cost of a gallon of gasoline,” Mark Zandi, chief economist at Moody’s, told CNBC.
“If oil prices remain near current levels of $100 per barrel, the price of gasoline will approach $4 per gallon by this time next week. Inflation will accelerate quickly, reducing consumer purchasing power and hurting consumer spending, GDP and jobs,” Zandi said.
All eyes on affordability
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Now, concerns about affordability are likely to quickly intensify, experts say.
“Rising oil prices have a direct and immediate impact on consumer costs, and not just at the pump,” said certified financial planner Stephen Kates, a financial analyst at Bankrate. “Unlike last year’s higher tariffs, which took months to be reflected in prices, rising oil prices are reflected quickly,” he said.
“An immediate increase in gasoline prices will strain household budgets and also increase costs for shipping, airline tickets and products that rely on oil-based inputs,” Kates said.
Renewed inflationary pressures from the joint US-Israel strike also helped drive the benchmark’s return 10-year Treasury Department up more than 4 basis points to 4.173%. The 10-year bond yield is a barometer for mortgage rates and other types of loans.
The biggest burden most Americans face is their mortgage. According to Mortgage News Daily, the average interest rate on a 30-year fixed-rate mortgage rose to 6.14% on Monday, compared to 5.99% at the end of February.
San Francisco Federal Reserve President Mary Daly also told CNBC on Friday that higher prices at the pump combined with “above-target inflation” would create an even more difficult environment for ordinary Americans. “I don’t think it’s really a reassuring feeling for consumers,” she said.
Next up: The Fed’s interest rate decision in March
Amid geopolitical turmoil, inflationary pressures and an unclear outlook for tariffs and fiscal policy, Federal Reserve officials will meet next week and announce a decision on interest rates. The Fed’s benchmark also has a domino effect on many of the borrowing and savings rates Americans see every day.
“Uncertainty caused by the turmoil in the Middle East will cause the Fed to put any monetary policy changes on hold until policymakers can better assess whether the inflation or growth effects outweigh the consequences,” Zandi said. “Higher oil prices are another negative supply shock that drives up inflation, hurts growth and puts the Fed in a win-win situation.”
According to CME Group’s FedWatch Indicator, futures pricing suggests almost no chance of a rate cut.
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