March 10, 2026, 2:48 p.m. ET
Rising gasoline prices and a wobbly stock market are increasing the risk that the U.S.-Israeli war on Iran could hit hard among consumers across the economic spectrum in the United States, undercutting a key prop of economic growth that had been expected to surge this year on the basis of beefed-up income tax refunds, relatively low unemployment, and rising asset values.
Heading into the year, analysts felt there was reason both “spurs” of the U.S.’ so-called K-shaped economy could sustain or even grow spending in coming months, with wealth effects leading better-off families to consume more and windfall tax refunds from new exemptions on overtime and tip income helping hourly and some service industry workers.
Instead, both sides could be under different sorts of pressure. Average national gasoline prices topped $3.50 a gallon as of Tuesday morning according to American Automobile Association data, a 17% jump from the roughly $3 average from before the beginning of the conflict. Prices are now above $3 in every state except Kansas, where the average was $2.96, and with oil markets still volatile given shipping disruptions in the Strait of Hormuz analysts see $4 gas as a possibility if the conflict persists.
Stocks have come off their highs and the uncertainty about what’s next, a factor in household spending based on rising net worth, was on display when President Donald Trump on Monday hinted at a possible quick end to the conflict and sent stocks higher, only to temper his language overnight and keep open the chance of an extended conflict with all of the attendant risks to global supply chains, commodity markets, and corporate earnings.
Major U.S. stock indices were little changed when trading opened on Tuesday morning.
For lower-income households, rising gasoline costs could pull money from other categories of spending, spreading the pain across businesses that could in turn begin to lower job and investment plans in a suddenly uncertain environment.
“The higher the price and the longer it goes the more you shift from higher prices benefitting some companies who boost oil production and get more revenue…to really pinching consumers and being a drag on the economy. There is some point of prices being at a certain level for a certain amount of time that it flips from being a plus to GDP to a drag on GDP and increasing the likelihood of a downturn,” said Luke Tilley, chief economist at Wilmington Trust, with oil in the $85 to $100 per barrel range for several months likely to “materially increase the risk of recession because the labor market is already in such a challenging state.”
Benchmark Brent crude topped $116 a barrel on Monday before falling below $90 a barrel, then rising again on Tuesday morning. Far from an offramp, U.S. Defense Secretary Pete Hegseth said Tuesday would see the most intense strikes yet on Iran, even as a top general talked of targeting Iran’s capacity to lay mines in the Strait of Hormuz, a possible step towards reopening shipping through a chokepoint where the movement of oil from the Middle East has all but stopped.
The sudden shift in risks to the U.S. and global economy has posed a challenge to central bank policymakers, particularly in the U.S., where officials saw an essentially strong economy facing a balanced set of risks between inflation that was lodged about a percentage point above their 2% target but expected to fall, and an unemployment rate seemingly stable in a range around 4.3% with no clear consensus that it was about to spike higher.
That view has now been hit from both sides: with the economy already having shed jobs unexpectedly in February, there is now the added risk that uncertainty stemming from the conflict could cause businesses to become more cautious about hiring, while inflation could rise more broadly if higher oil prices drive up costs for other things, like shipping rates or home heating bills.
Even though higher fuel prices may have only a temporary influence on inflation, or could even ease broader price pressures on net if consumers shift spending away from other areas and overall growth slows, the current context poses other risks.
In analysis conducted after oil costs jumped in 2022 following Russia’s invasion of Ukraine, Kansas City Fed researchers concluded that increases in high-profile consumer prices like those for gasoline can have an outsized effect on household inflation expectations if those are already elevated by a previous inflation shock – a dynamic Fed policymakers continue to worry about and have cited as a reason to keep monetary policy restrictive in order to hold expectations in check.
Investors still expect the Fed to cut interest rates this year, but the timing shifted back after the start of U.S. military action, with a potential standoff developing among policymakers between inflation and growth concerns.
The Fed meets next week and is expected to keep its policy rate steady in the current 3.5% to 3.75% range.
Vincent Reinhart, chief economist at BNY Investments and a former top Fed staffer, said it was far too early for the central bank to draw any conclusions about the likely economic fallout from the conflict. Even concerns about the impact on growth have to be tempered by the fact that the U.S.’ role as a net energy producer means that while higher global prices may mean higher prices at the pump for U.S. consumers, it also means higher income, and potentially more jobs and investment, for U.S.-based energy firms.
But the longer prices remain elevated the greater the risks, with per-barrel costs in the upper $90 range for a month or longer the sort of material shock that could start to undercut consumption and growth.
“You have to have prices meaningfully higher than what people are used to,” for an oil shock to change the course of the U.S. economy, Reinhart said. “It’s got to be big enough. We’re not at the big enough stage.”
Reporting by Howard Schneider; Editing by Andrea Ricci
