Although the war between the United States and Iran is unfolding thousands of miles away, American consumers are already feeling the economic ramifications.
Last weekend’s attacks on Iran by the United States and Israel threw markets into turmoil, leading to a week of soaring mortgage rates and rising prices. These changes are likely to drag down already depressed consumer confidence while further elevating affordability as a key political issue.
“War is never good for consumer sentiment,” said Mark Brennan, an associate professor at New York University’s Stern School of Business. “It may be good for munitions, manufacturers, lobbyists and other clowns, but it’s not good for the average consumer.”
The average gallon of gasoline in the United States reached $3.25 on Thursday, according to AAA. The group said the 27 cent increase over the past week is similar to that seen at the start of Russia’s invasion of Ukraine in 2022.
The 8.5% rise in gas prices over three days is the largest since Hurricane Katrina devastated New Orleans in 2005, according to an analysis by Bespoke Investment Group.
Gasoline prices are expected to rise further due to Friday’s spike in crude oil prices. Gasoline futures rose another 2% in New York on Friday.
To be sure, consumers were feeling some relief in oil prices before this week’s shock. The average price of a gallon fell late last year to its lowest level since 2021, according to AAA.
Rising mortgage interest rates
According to Mortgage News Daily, 30-year mortgage rates rose more than 6.1% this week. Popular fixed-rate loans had previously been trading below 6%, the lowest level in years.
Mortgage rates roughly track 10 year treasury Yields rose again this week to more than 4% in the wake of the Iranian attack. Rising oil prices have raised concerns in the bond market that inflation will rise again and yields will rise.
30-year fixed mortgage rates year-to-date
Stock prices have fallen sharply this week, potentially adding to the uncertainty felt by consumers who actively trade stocks or have market exposure through retirement plans.
of Dow Jones Industrial Average Stocks fell nearly 800 points on Thursday as U.S. crude rose above $80 a barrel, reigniting concerns about how the war would affect markets. The blue-chip average fell more than 2% this week, while the broad-based company average fell this week. S&P500 0.7% decrease.
According to Dan Niles, if U.S. oil prices rise above $100 per barrel, a global recession could occur. However, the founder of Niles Investment Management said in an interview on CNBC’s “Power Lunch” that such a scenario is unlikely to develop, as he expects the conflict to only last about a month.
These ripple effects could intensify the pain Americans have felt since the runaway inflation seen during the pandemic weakened their fiscal foundations. Consumer sentiment has fallen to near record lows in recent months, according to consumer research closely tracked by the University of Michigan.
Market turmoil before the war, widening economic inequality and rising costs of living had already made affordability a political buzzword this year as Americans headed to the polls in the midterm elections.
“War makes everyone anxious,” Brennan said. “It’s hard to paint a rosy scenario out of something like this.”
—CNBC’s Sean Conlon, Pia Singh and Diana Orrick contributed reporting.
