Higher gasoline prices, volatile stocks, could hit both low- and high-income US consumers as war persists

• National average gas prices rose 17% to $3.50/gallon, with analysts warning $4/gallon is possible if the conflict continues and Strait of Hormuz shipping disruptions persist
• Lower-income households may cut spending in other categories due to higher fuel costs, while wealthy consumers face uncertainty from volatile stock markets that have fallen from recent highs
• Fed policymakers confront dual risks: potential job market weakness (after unexpected February job losses) combined with broader inflation pressures if oil prices remain in the $85-$100 range for several months

Summary: U.S.-Iran Conflict Threatens Consumer Spending Amid Rising Gas Prices and Market Volatility

The ongoing U.S.-Israeli conflict with Iran is creating economic pressures across income levels, threatening consumer spending that was expected to drive growth in 2026. National average gasoline prices surged 17% to $3.50 per gallon as of March 10, up from roughly $3.00 before the conflict began, with analysts warning $4.00 gas is possible if hostilities continue.

Key Market Developments:

• Brent crude oil experienced extreme volatility, surging above $116 per barrel Monday before falling below $90, then rising again Tuesday
• Oil shipments through the Strait of Hormuz have nearly stopped
• Major U.S. stock indices remain volatile and off recent highs
• The U.S. shed jobs unexpectedly in February

Economic Implications:

Lower-income households face reduced discretionary spending as gas costs rise, potentially forcing businesses to cut hiring and investment plans. Higher-income consumers are affected by stock market uncertainty and wealth effect concerns. Wilmington Trust's chief economist warns oil prices in the $85-$100 range for several months could "materially increase the risk of recession" given labor market challenges.

Federal Reserve Challenges:

The Fed faces pressure from both sides: rising inflation concerns as higher oil prices drive up costs for shipping and heating, coupled with growth risks from potential economic slowdown. Kansas City Fed research indicates visible price increases like gasoline have outsized effects on inflation expectations when already elevated. The Fed meets next week and is expected to hold rates steady at 3.5%-3.75%, though rate cut timing has shifted back.

Economists suggest oil prices must remain in the upper $90s for at least a month to constitute a material economic shock affecting consumption and growth.