American families are experiencing unprecedented economic anxiety as consumer sentiment plunged to its lowest level ever recorded, driven by soaring gas prices and inflation fears stemming from the U.S.-Iran war that has choked off critical oil supplies for nearly three months.
The University of Michigan's index of consumer sentiment dropped for the third straight month to 44.8 from a preliminary reading of 48.2, falling below April's 49.8 level. CNN reported the index fell to 44.2, marking a historic low that surpasses the despair felt during previous national crises including wars, the 1970s oil crisis, 9/11, the Great Recession, and even the Covid-19 pandemic.
Working Families Bear the Brunt
The economic pain is not distributed equally. CNN reported that some of the sharpest declines in sentiment came from lower-income consumers and those without college degrees, with increases in the cost of fuel and other essentials hitting those groups particularly hard. Joanne Hsu, director of the university's Surveys of Consumers, said in a statement that "the cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month." Consumers' personal finances sank by 13% in May, Hsu noted.
The University of Michigan's sentiment survey, which dates back to 1952 and is now in its seventy-fourth year, shows Americans feeling worse now than at any point in more than seven decades of tracking. The current reading falls just below the previous historical trough seen in June 2022, marking the fourth anniversary of that earlier crisis point.
War's Ripple Effects Spread Through Economy
Gas prices have been rising as the Strait of Hormuz, an important passageway for the shipping of oil and other critical goods, has been effectively choked off for nearly three months. Hsu explained that "earlier this year, consumers may have reserved judgment about how long the Iran conflict would last. Three months into the conflict, consumers appear to be worried that supply disruptions are unlikely to be resolved quickly." She added that consumers were concerned high oil and gas prices would spread through the economy and make other goods and services more expensive.
CNN said the U.S.-Israeli war in Iran and its subsequent oil supply crunch and price shocks worsened sentiment that already had been soured by years of high inflation and an affordability crisis. CNBC reported that consumer sentiment tumbled as fears of higher prices grew due to the U.S.-Iran war and elevated oil prices.
Inflation Expectations Climb
Inflation expectations over the year ahead rose to 4.8% from 4.7% last month, well above the 3.4% reading seen in February before the war began, according to CNBC. Longer-term inflation was expected to rise 3.9%, up from 3.5% in April. CNN said the five-year expected inflation rate jumped to 3.9% from 3.5%, with the near- and long-term expectations back at rates hit during the latter part of last year, when tariffs added to inflationary pressures.
CNBC quoted Hsu as saying, "Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run." Markets around the world have been volatile as investors weighed how soon the war could end and the ramifications of elevated oil prices for a long time, CNBC reported. The 30-year Treasury bond yield this week hit its highest level since before the financial crisis, and the benchmark 10-year Treasury note yield touched levels not seen in over a year.
Federal Reserve Response
The Federal Reserve has signaled it was less willing to lower rates amid the inflationary pressures. Fed Governor Christopher Waller said in a speech Friday, "While measures of longer-term inflation expectations are still relatively low and appear well anchored, some expectations from one to five years ahead have moved up since the beginning of 2026, which I find concerning."
Why This Matters:
The collapse in consumer confidence to unprecedented levels reveals how military conflicts abroad translate into kitchen-table hardships at home, with working-class families and those without college degrees bearing disproportionate costs. When lower-income households face sharp increases in fuel and essential goods prices, they have fewer financial buffers and less ability to absorb shocks, deepening economic inequality. The sustained nature of the oil supply disruption—nearly three months with no quick resolution in sight—means these pressures will continue eroding household budgets and could trigger broader economic slowdowns as consumer spending, which drives much of the economy, contracts. The Federal Reserve's reluctance to provide rate relief amid rising inflation expectations suggests families may face prolonged financial strain without policy interventions to cushion the impact of geopolitical disruptions on everyday Americans.