Rising gasoline prices and climbing Treasury yields are delivering a one-two punch to American consumers as tensions between the U.S. and Iran escalate, with economists estimating that higher energy costs alone have already erased the benefits of this year's tax rebate increases. As shoppers increasingly dip into savings to maintain their spending levels, experts warn this fragile dynamic is unlikely to persist over the long haul.

With the conflict intensifying in recent weeks, crude oil prices have accelerated upward, pushing retail gasoline prices higher. Simultaneously, the 10-year Treasury yield has surged to a 19-year high this week, lifting borrowing costs for mortgages and auto loans, which further strains household finances. "Consumers are under tremendous financial stress," said Mark Zandi, chief economist at Moody's Analytics.

Where the financial strain is coming from

According to Moody's Analytics data as of September 11, households have accumulated an average additional economic burden of roughly $1,760 since the U.S.-Iran conflict began. More than half of that sum—about $930—stems from increased energy spending, covering higher prices for gasoline, diesel, and jet fuel. Moody's estimates that U.S. consumers have spent over $121 billion extra on energy since the war's outbreak. Of the total $1,760 burden, $425 is attributed to higher interest costs that have followed the conflict's onset, while the remaining $405 comes from defense spending expansion, which Zandi asserts will ultimately be borne by all consumers through larger deficits or tax increases.

Retail pain at the pump

Oil prices continued their climb on Tuesday, reaching their highest closing level since mid-May, following attacks by Houthi rebels on Saudi facilities. Despite assurances from U.S. Energy Secretary Chris Wright that the shutdown of Saudi Arabia's East-West pipeline would last only days, prices jumped sharply. AAA data shows the national average gasoline price broke above $4.32 per gallon on Tuesday, up 6% from the previous month and a striking 36% higher year-over-year. Travelers during the Labor Day holiday earlier this month encountered the most expensive holiday fuel prices on record.

Diesel prices have also risen substantially in recent days, with AAA reporting prices roughly 70% higher than the same period last year. Economists caution that diesel, the primary fuel for the trucking industry moving food and goods, could push businesses to pass these higher costs onto consumers, accelerating price increases across the board. The University of Michigan's closely watched consumer sentiment survey shows that slightly over 29% of respondents in September spontaneously mentioned gasoline prices, compared with just 12% and 6% during the same periods in 2024 and 2025, respectively.

A May report from Deloitte calculated that a 20% rise in crude oil prices would lift headline inflation by about 0.3 percentage points—a figure that does not yet account for knock-on effects in areas like airfares and groceries, meaning the real inflationary pressure could be far greater. Since the conflict began, energy has become one of the fastest-rising categories in the U.S. Bureau of Labor Statistics' CPI data. Fresh figures released last week show energy prices in August were up more than 23% year-over-year.

The yield ripple effect

The 10-year Treasury yield hit multi-year highs on Tuesday, marking a critical benchmark for consumer loans and corporate financing. This yield now stands a full percentage point above its level from a year ago. Bond investors, worried about the war fueling inflation and increasing the strain on U.S. government debt servicing, have been the primary driver behind the sharp rise. Higher yields, in turn, dampen consumer appetite and confidence for big-ticket purchases. The University of Michigan survey shows that 44% of consumers in July expected borrowing costs to keep climbing over the next year—a 10-point jump from the same time last year. Compared with a year ago, more respondents considered it a bad time to buy a vehicle, citing high rates and tight credit as key negative factors.

The 30-year fixed mortgage rate, which generally tracks the 10-year Treasury yield, has this month crossed a key threshold for the first time in over a year. Since the U.S.-Iran conflict erupted, mortgage rates have trended steadily upward alongside long-term Treasury yields, exacerbating the nation's housing affordability crisis. The Atlanta Federal Reserve's home affordability monitor fell to historically rare lows this summer. "Higher rates feel a lot like inflation—everything just gets more expensive," said Diane Swonk, chief economist at KPMG. Meanwhile, Nicole Bashaw, a labor economist at job platform ZipRecruiter, points out that rising corporate borrowing costs could hamper hiring momentum. Companies reluctant to expand their workforces would make it harder for Americans to find jobs or switch roles, reinforcing the current picture of a softening labor market. Bashaw also noted that if the Federal Reserve continues to hike rates, it would further depress firms' willingness to add staff. Fed surveys indicate most respondents expect at least two more rate hikes within the next year, and interest rate futures pricing suggests a probability of over 92% that the Fed will begin hiking—which would mark the central bank's first increase in over three years.

Higher borrowing costs also push up interest charges on revolving credit. New York Fed data shows total U.S. credit card debt in the second quarter reached $1.26 trillion, near record highs.

Someone has to absorb the pain

Multiple economists contend that the energy cost increases driven by the war have fully offset the tax rebate benefits from the Trump administration's tax reform. Lower-income groups, who spend a larger share of their earnings on energy, feel the sting of higher gasoline prices most acutely, further widening the K-shaped recovery divergence among income brackets that has persisted since the pandemic. Government data from August shows that, amid surging energy prices, overall inflation once again outpaced income growth. After adjusting for inflation, real household incomes have slipped into negative territory, eroding purchasing power.

With rebate benefits fading and real wages weakening, consumers are relying on savings to fund their spending, according to Luke Tilley, chief economist at M&T Bank and Wilmington Trust. The U.S. personal savings rate in 2026 has fallen to unusually low levels not seen since the financial crisis. Tilley warns that consumers will likely be forced to pull back on spending eventually—and since household consumption is the primary engine of U.S. GDP, that would carry concerning consequences. The Bureau of Economic Analysis reported that personal consumption expenditures rose just 0.2% in July, a notable slowdown from the previous month's pace. "That's the reality—costs go up, income growth slows, and something has to give in the economy," Tilley said.