Consumer sentiment in the United States has fallen to a new record low in May, with the University of Michigan's index dropping to 44.8 from a preliminary reading of 48.2 and well below the 49.8 level recorded at the end of April [1]. This marks the third consecutive monthly decline and places sentiment just below the previous historical trough seen in June 2022 [1]. The decline is attributed to growing fears of higher prices fueled by the ongoing U.S.-Iran war and persistently elevated oil prices, which have been exacerbated by supply disruptions in the Strait of Hormuz, leading to increased gasoline prices [1].
Inflation expectations have also risen, with consumers anticipating a 4.8% increase in prices over the year ahead, up from 4.7% last month and significantly higher than the 3.4% reading in February, prior to the onset of the war [1]. Longer-term inflation expectations have climbed to 3.9%, compared to 3.5% in April [1]. According to Surveys of Consumers Director Joanne Hsu, consumers are increasingly concerned that inflation will not be limited to fuel prices but could spread more broadly, even in the long run [1].
Financial markets have experienced heightened volatility as investors assess the potential duration of the war and the implications of sustained high oil prices [1]. The 30-year Treasury bond yield reached its highest level since before the financial crisis, while the benchmark 10-year Treasury note yield also hit levels not seen in over a year [1]. In response to these inflationary pressures, the Federal Reserve has indicated a reduced willingness to lower interest rates [1]. Fed Governor Christopher Waller expressed concern over the upward movement in some longer-term inflation expectations since the beginning of 2026, despite overall measures remaining relatively low and anchored [1].
CONCLUSION
U.S. consumer sentiment has deteriorated sharply in May, driven by inflation concerns linked to the U.S.-Iran war and rising oil prices. The negative outlook is reflected in both consumer expectations and market volatility, with the Federal Reserve signaling caution on rate cuts. The persistence of these pressures suggests continued uncertainty for markets and consumers.