U.S. consumers are grappling with significant financial strain due to escalating oil prices and rising Treasury yields amid renewed conflict between the U.S. and Iran. Since the conflict intensified, households face an average additional cost of about $1,760, with roughly $930 stemming from higher energy costs, including gasoline and diesel, according to Moody’s Analytics. The surge in crude oil prices has pushed the average gallon of gas above $4.32, reaching levels not seen since mid-May, with diesel prices hitting record highs, further burdening consumers and raising transportation costs for goods.

The increase in the 10-year Treasury yield to its highest level in 19 years has also heightened borrowing costs, impacting loans for homes, cars, and other major purchases. The average 30-year fixed mortgage rate has surpassed 7%, contributing to an already challenging housing affordability situation. This rise in interest rates not only affects consumers but also dampens corporate hiring and investment, which has implications for the labor market where hiring remains subdued amid economic uncertainty.

Experts highlight that the combined effect of energy price spikes, rising interest rates, and higher military spending financed through debt or taxes is squeezing consumer finances. While some benefit from larger tax refunds under new legislation, these gains have been largely offset by growing expenses. Lower-income households feel the squeeze more acutely due to their higher energy spending, exacerbating economic inequality and contributing to a “K-shaped” recovery where different income groups experience divergent outcomes.

With inflation outpacing wage growth and savings reserves dwindling to levels reminiscent of the Global Financial Crisis, economists warn that U.S. consumers may soon need to cut back on spending. Since consumer expenditure accounts for a substantial portion of the country’s GDP, any pullback could pose risks to broader economic growth. The combination of higher prices and borrowing costs is creating a challenging environment for households to maintain their living standards and financial stability in the near term.