Consumer Sentiment Hits Record Low as Iran War Stokes Inflation Fears

CNBC reported Friday that U.S. consumer sentiment has dropped to an all-time low in May. The deterioration reflects mounting anxiety over rising fuel costs tied to the ongoing U.S.-Iran conflict.

Sentiment Index Falls Below Historical Floor

The University of Michigan’s final May reading came in at 44.8. That is a sharp drop from both the preliminary estimate of 48.2 and the 49.8 reading recorded at April’s close. Surveys of Consumers Director Joanne Hsu attributed the slide to persistent supply disruptions in the Strait of Hormuz. Those disruptions have pushed gasoline prices steadily higher. Hsu noted the index is now just below the prior record trough set in June 2022. She warned that consumers fear inflation will spread well beyond fuel costs, even over the longer term.

Also Read: Fed Signals Rate Cuts on Hold as Inflation Pressures Mount

Inflation Expectations Jump Sharply

Near-term inflation expectations climbed to 4.8% in May, up from 4.7% in April. The February reading, before the war began, stood at just 3.4%. Longer-run expectations also moved higher, rising to 3.9% from 3.5% the prior month. That widening gap between current and pre-war expectations underscores how dramatically the conflict has reshaped the public’s price outlook.

Also Read: Oil Markets Rattled as Strait of Hormuz Disruptions Deepen

Background: Bond Markets and Fed Policy Under Pressure

The sentiment data arrives against a volatile backdrop across global markets. The 30-year Treasury yield touched its highest level since before the financial crisis this week. The benchmark 10-year note yield also reached multi-year peaks. Both moves reflect investor concern about persistent inflationary pressure. Fed Governor Christopher Waller addressed those concerns in a speech Friday. He said some medium-term inflation expectations have drifted higher since early 2026, calling the trend concerning. The Federal Reserve has grown less inclined to cut rates as a result. Prior to the war, markets had widely expected multiple rate reductions in 2026.

What Comes Next for Consumers and Markets

Prolonged conflict and elevated oil prices form a difficult combination for household budgets. Gasoline costs filter quickly into food, logistics, and discretionary spending. If sentiment stays near record lows, consumer spending data in the coming months may begin to reflect that caution. Fed policymakers face a narrow path between supporting growth and keeping inflation expectations anchored.

Read Next: Fed Holds Rates Steady as Inflation Outlook Darkens