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American consumers are feeling less confident about the economy, and the ongoing conflict in the Middle East is making things worse.
A closely watched survey shows that sentiment has dropped to its lowest level since December, with inflation fears growing across all income groups and age brackets.
Sentiment Drops More Than Expected
The University of Michigan’s Consumer Sentiment Index fell to 53.3 in March, down from 56.6 in February and below the 54.0 figure that economists expected.
The current conditions gauge slipped to 55.8, while the expectations index fell to a four-month low. The decline was broad-based, hitting middle- and higher-income consumers, and stock owners. The index is now not far from the record low reached in June 2022. ⁽¹⁾
The Middle East conflict, now entering its fifth week, has sent global oil prices surging by more than 50%. This sharp rise in oil prices is hitting household budgets hard and adding to already existing worries about the cost of everyday goods.
Inflation Expectations Are Rising
Year-ahead inflation expectations jumped to 3.8% in March, up from 3.4% the month before, the biggest single-month increase since April 2025. Nearly half of all consumers, 47%, said that high prices are actively eroding their personal finances. ⁽²⁾
The survey’s short-term economic outlook dropped 14%, and a measure of expected personal finances for the year ahead fell 10%. Longer-term inflation expectations, covering the next five years, were slightly more stable, easing from 3.3% to 3.2%. ⁽³⁾
Could Gas Prices Cancel Out Tax Cuts?
One growing concern is that rising gas prices may wipe out the economic benefit of tax cuts passed under the One Big Beautiful Bill Act. Economists at JPMorgan warn that this could happen if the national average price at the pump climbs close to $5 per gallon or more, a threshold already crossed in at least two states. ⁽⁴⁾
Markets React and the Fed Holds Steady
Financial markets have also taken a hit. The S&P 500 has dropped about 8% since the war began, and both the S&P 500 and the Nasdaq fell to more than six-month lows last week.
The Federal Reserve, for its part, kept its Fed Funds Rate unchanged at 3.75% this month. In updated projections, Fed policymakers signaled they now expect higher inflation and only one interest rate cut for the rest of the year.
