Global tensions involving Iran are unfolding at a difficult moment for American households. After several years of rising food, medical and housing costs, families are now facing higher gasoline prices as well. The uncertainty surrounding how long the instability may last is prompting many Americans to reassess their household budgets.

American Consumers Are Under Significant Pressure

Even before the conflict in Iran caused price spikes, recent market signals showed how American households are under pressure. Consumers continue to show signs of financial strain, with sentiment remaining low and 46% of households citing unaffordable prices as a major pressure point.

Use of buy now, pay later services for groceries is increasing, and 41% of BNPL users have been late on payments, which could hurt their consumer scores. Federal Reserve data also point to rising stress across major credit categories: the overall consumer loan default rate stands at 2.78% for all commercial banks; credit card delinquencies for accounts 90 days or more past due reached 7.10% in late 2024 and climbed to 20% to 23% in some low‑income areas by late 2025; auto loan delinquencies rose to 2.90% in the third quarter of 2024 and continued increasing in 2025; serious student loan delinquencies spiked to 16.3% in the fourth quarter of 2025 after the payment pause ended; and 3.76% of mortgage balances were in some stage of delinquency as of the third quarter of 2025. At the same time, hardship withdrawals from 401(k)s have reached record highs, underscoring the growing financial pressure on many households.

Inflation Was A Challenge Even Before The Iran Conflict

The recently released Beige Book shows that throughout February prices had been rising. Eight Federal Reserve districts reported moderate price growth, and four districts saw slight or modest increases, noting, “Many Districts reported that costs rose across several nonlabor inputs, including insurance, utilities and energy, and metals and other raw materials. Nine Districts mentioned that tariffs contributed to increased costs. Some firms continued to pass tariff-related cost increases through to their customers, and others began to do so after having absorbed previous increases.”

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Higher Oil Prices Push Other Prices Up

Unfortunately, pressure on Americans’ budgets will worsen. Crude oil prices have risen almost 32% since the beginning of the conflict involving Iran. Because oil and its byproducts are needed for every facet of the economy, inflationary pressure will continue to rise.

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Current and anticipated supply chain disruptions have pushed up gasoline, jet fuel, fertilizer, utility and agricultural pesticides prices, and they are likely to climb further if the conflict continues. In the U.S., the average national price of gasoline rose by 11% in one week. According to the AAA, “The last time the national average made a similar weekly jump was back in March of 2022 during the start of the Russia/Ukraine conflict.”

Higher Prices Challenge The Federal Reserve

Inflation is at about 2.9%, which is significantly higher than the Federal Reserve’s target of 2.0%. In the Federal Reserve’s recent decision to hold rates steady, “several participants indicated that they would have supported a two-sided description of the Committee’s future interest rate decisions.” This means that some members of the Federal Open Market Committee see “the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels.”

According to Goldman Sachs analysts, a prolonged 10% rise in oil prices could push core CPI up by 4 basis points.

Rising prices make it difficult for the FOMC to cut rates in the near term. The longer the conflict involving Iran goes on, not only will it be challenging to cut rates, but in a worst-case scenario the Federal Reserve could even raise them.

Americans Will Start To Cut Spending

Given rising pressure on American consumers, their finances will worsen if the conflict involving Iran is prolonged. Americans will have to decrease their discretionary spending, which could cause economic growth to slow. Additionally, Americans will have to focus on trying not to become more indebted as well as on paying off higher-interest debt to make sure that their consumer score does not worsen. Through no fault of their own, the American consumer faces a tough year ahead as long as the conflict involving Iran does not end.

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