In February, Americans felt good about their financial situation. But that was before the Iran war, which was threatening to stretch the household budget.
A New York Federal Reserve survey released Monday showed consumers and households overall said they expect inflation to be lower next year Better than a year ago. The New York Fed’s monthly survey of consumer expectations was fielded from February 2 to February 28.
That same day, the US and Israel attacked Iran, causing the largest oil supply disruption in history. US crude prices rose more than 35% as a result, posting the biggest weekly gain since the futures contract began trading in 1983.
US oil prices hit a high of $119.50 on Monday, and the national average gasoline price rose to $3.50 a gallon as of Tuesday, up 21% from a month ago, according to AAA.
Although US oil prices dipped below $90 per barrel on Monday afternoon and continued to slide on Tuesday, they remain well above the $60-per-barrel level that started the year.
President Donald Trump said the gains in “short-term oil prices” are “too small a price” to pay for “security and peace,” in a Truth Social post Sunday evening.
However, experts say the surge in energy costs has led to long-term inflation fears.
“Consumers threaten to be hammered by rising oil prices, which have already raised the price of a gallon of gas by 50 cents,” Moody’s chief economist Mark Zandi told CNBC.
“If oil prices stay near current levels of $100 per barrel, gasoline will close at $4 a gallon by next week. Inflation will accelerate quickly, cutting consumer purchasing power and hitting consumer spending, GDP and jobs,” Zandi said.
All eyes on affordability
“Rising oil prices have a direct and immediate impact on consumer spending, and not just at the gas pump,” said certified financial planner Stephen Cates, a financial analyst at Bankrate. “Unlike last year’s high tariffs, which took months to meaningfully filter down to prices, the increase in oil prices will be reflected quickly,” he said.
“An immediate rise in gasoline prices will strain household budgets and increase the cost of shipping, airline tickets and products that depend on oil-based inputs,” Cates said.
10 year Treasury Up more than 4 basis points to 4.173%. The yield on the 10-year note is a barometer for mortgage rates and other types of loans.
Most Americans’ largest liability is their home mortgage. The average rate for a 30-year, fixed-rate mortgage rose to 6.14% as of Monday, up from 5.99% at the end of February, according to Mortgage News Daily.
San Francisco Federal Reserve President Mary Daly told CNBC on Friday that higher prices at the gas pump, along with “higher-than-target inflationary pressures,” will create an even more challenging environment for everyday Americans. “I don’t think it really feels comforting to consumers,” she said.
Next up: Fed’s March interest rate decision
Against a backdrop of geopolitical turmoil, inflationary pressures and an unclear outlook for tariffs and fiscal policy, Federal Reserve officials will meet next week to announce a decision on interest rates. The Fed’s benchmark also has a ripple effect on many of the borrowing and savings rates Americans see every day.
“The uncertainty created by the turmoil in the Middle East ensures that the Fed will hold off on any changes in monetary policy until policymakers can better gauge whether inflationary or decelerating growth effects will predominate,” Zandi said. “Higher oil prices are another negative supply shock, lifting inflation and hurting growth, putting the Fed in a no-win situation.”
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(tags to translate)Mortgage
