US Economic Sentiment Near Record Low as Prices Squeeze Households

Americans’ view of the economy has sunk to near record lows, driven by persistently high inflation, elevated mortgage rates and a roughly 50% surge in gasoline prices since the start of the Iran war. The University of Michigan’s final September Index of Consumer Sentiment registered 48.1 — the second-lowest final reading in the survey’s 74-year history, according to final results of the university’s Surveys of Consumers.

The reading deepened a slump that began in the spring, when the U.S.-Israeli attack on Iran upended a U.S. economy that had been on a steady path toward lower inflation and cheaper borrowing. Nearly seven months into the conflict, NBC News reported, the war has left consumer confidence badly damaged and the country’s economic trajectory reversed.

A steep and broad decline

The September index fell 3.6 points from August’s 51.7, a 7.0% month-over-month decline, and dropped 12.7% from 55.1 a year earlier. The gauge of Current Economic Conditions slipped to 50.9, down 15.7% year-over-year, while the Index of Consumer Expectations tumbled to 46.3 — a 10.1% monthly drop. The sentiment index remains down about 15% from January 2026.

Only one measurement — the historic low of 44.8 in May 2026, recorded just months after the war’s outbreak — stands below September’s reading. The index had recovered to 51.7 by August before falling back again.

“Consumer sentiment ticked down less than four index points in September, reaching the lowest reading in four months,” Joanne Hsu, director of the University of Michigan Surveys of Consumers, said in a statement. “Views of current and year-ahead expected personal finances both weakened about 10% this month, with concerns over high prices continuing to climb.”

The transmission mechanism

The decline traces back to energy prices and a chain reaction through the broader economy, according to the university’s data and reporting by ABC News. Higher fuel costs pushed overall inflation up, prompting the Federal Reserve to raise interest rates, which in turn lifted borrowing costs, mortgage rates and long-term Treasury yields.

Inflation ran at an annual rate of 3.4% in August, the most recent month on record — up from 2.4% on Feb. 27, the day before the war began, and more than a percentage point above the Fed’s 2% target, according to ABC News. The average price of a gallon of gas stands at roughly $4.49, a jump of about 50% since the war started in late February.

The 10-year Treasury yield has climbed from about 3.96% to nearly 5% since the conflict began, and the average 30-year mortgage rate now exceeds 7%, compared with less than 6% before the war.

Inflation expectations climb

Perhaps most worrying for policymakers, Americans now expect inflation to run even hotter. Year-ahead inflation expectations jumped from 4.0% in August to 4.6% in September — the highest since June and substantially above the 3.4% reading in February before the Iran conflict. Long-run expectations ticked up to 3.4%, ending three consecutive months at 3.3% and remaining above the 2024 range of 2.8% to 3.2%.

“The short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole,” Hsu said. “With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.”

Those expectations explain the Fed’s September decision to raise its benchmark rate by a quarter point — its first hike since 2023. Fed Chair Kevin Warsh was blunt about the reason.

“The plain fact is that inflation is too high and has been for too long,” Warsh said at a press conference.

Investors now peg a roughly two-in-three chance of another quarter-point hike in October, according to the CME FedWatch tool. The Congressional Budget Office has estimated the war added at least 0.5 percentage points to inflation.

A political liability

The sour mood carries clear political stakes. With less than six weeks until November’s midterm elections, the theme of affordability has come to dominate House and Senate campaigns, with Democrats hoping to win over disaffected Republicans and independents.

The university’s data reveal a rare bipartisan dissatisfaction. Hsu noted that “interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year.” Republican sentiment is now 20% lower than in January 2026, while Democratic sentiment is down 13% over the same period.

National polling echoes that erosion. In March, 35% of respondents to an NBC News poll said President Donald Trump had helped the economy; by September, that figure had fallen to 26%.

The White House has pointed to the conflict’s temporary nature. “President Trump has always been clear about temporary disruptions as a result of the Iran conflict, but the Trump administration has remained laser-focused delivering on the President’s long-term economic agenda on the home front,” White House spokesman Kush Desai said in a statement to NBC News.

Offsetting strengths — and a ‘K-shaped’ split

Not every economic indicator is grim. The Census Bureau reported that median U.S. household income hit an all-time high in 2025, while the poverty rate fell to its lowest level on record. The stock market has hovered near record highs, unemployment remains low, and employers added 162,000 jobs in August. The economy grew over the three months ending in June, defying fears of a war-triggered downturn.

Yet the disconnect between buoyant markets and gloomy households reflects a widening divide. Those with exposure to equities have prospered, while families squeezed by higher prices and borrowing costs feel the pinch — a dynamic some analysts describe as a “K-shaped” economy.

Consumer behavior has not yet collapsed, however. Spending on extras such as travel and dining out has remained steady even as sentiment falls, a common historical pattern. Buying conditions for big-ticket durables even improved slightly, partly because consumers believe purchasing now will help them avoid higher prices later.

Uncertainty with no clear exit

What makes the current slump so difficult to resolve is the absence of any visible end to the conflict driving it. Oil analysts at JPMorgan acknowledged the limits of their own forecasts in a research note.

“We simply don’t know how to model the endgame,” they wrote. When the war began, the analysts said, they assumed the administration would not allow gas prices, inflation, or the 10-year yield to reach current levels. “Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more.”

Trump has suggested a deal on Iran could arrive after the midterm elections. Until the trajectory of the conflict — and energy prices — becomes clearer, the forces weighing on consumer sentiment appear likely to persist, keeping the economy’s mood near historic lows as voters head to the polls.