A trader works on the floor of the New York Stock Exchange on Monday (local time). [Reuters]
A trader works on the floor of the New York Stock Exchange on Monday (local time). [Reuters]

US consumer confidence fell to its lowest level in seven months as the prolonged Iran war kept oil prices elevated, deepening anxiety about inflation and the economic outlook. While Americans' assessment of current conditions improved, their expectations for the economy and the job market over the coming months deteriorated sharply — a divergence that analysts say could complicate the Donald Trump administration's efforts to bring down long-term interest rates.

The Conference Board's preliminary consumer confidence index for August came in at 89.4, down 0.8 points from a revised 90.2 in July, the private research group said Tuesday (local time). The reading marked the second consecutive monthly decline and the weakest level since January, falling short of the market consensus of 90.2.

High energy costs, rising living expenses and concerns about a slowing job market all weighed on sentiment. The average price of gasoline at US pumps exceeded $4 per gallon during the survey period.

Particularly striking was how quickly Americans' outlook for the future is darkening relative to their view of the present.

The present situation index, which reflects current business and labor market conditions, rose 6.8 points from the prior month to 121.2, rebounding for the first time in four months. The expectations index, which captures consumers' six-month outlook for income, business conditions and the labor market, fell 5.8 points to 68.2.

The Conference Board notes that an expectations reading below 80 typically signals a potential recession ahead. The decline suggests that what is pulling consumer sentiment down is not a sudden deterioration in current conditions but growing worry that inflation and employment prospects could worsen in the months ahead.

"Consumers' assessment of the current labor market improved, but they became more pessimistic about business conditions and the labor market over the next six months," said Dana Peterson, the Conference Board's chief economist.

Rising energy prices tied to the prolonged Iran war are also a key driver of the sentiment decline. With the conflict now in its sixth month and uncertainty over crude oil supply persisting, the burden of gasoline costs on everyday American consumers has grown.

If high oil prices persist, the consequences extend well beyond fuel costs at the pump. Higher transportation and logistics expenses can ripple through the broader prices of goods and services, potentially reigniting inflation concerns that had appeared to be easing.

That dynamic poses an additional challenge for the Trump administration, which has been working to push long-term government bond yields lower.

After long-term Treasury yields surged — with the 30-year yield climbing to its highest level since 2007 — Treasury Secretary Scott Bessent has rolled out measures to stabilize the bond market, including expanding the buyback of long-term Treasuries. The aim is to bolster demand for longer-dated bonds and ease downward pressure on prices that has been driving yields higher.

But if war-driven high oil prices rekindle inflation fears, the effectiveness of those measures could be limited. When expectations of rising prices strengthen, investors demand higher yields to hold long-term bonds, putting upward pressure on long-term rates.

The result is a tug-of-war: on one side, the Treasury is intervening in the long-term bond market to cap rising yields; on the other, energy price increases stemming from the Iran war are pushing inflation and rates in the opposite direction.

The calculus for the Federal Reserve's monetary policy is also growing more complicated. Weakening consumer sentiment and a deteriorating jobs outlook increase the case for easing to prevent an economic slowdown, but if high oil prices reignite price pressures, the Fed's room to cut interest rates could narrow.

Whether consumer spending — which accounts for roughly 70 percent of US GDP — will actually contract is another key question. If Americans begin pulling back on spending out of concern about the economic and employment outlook, the shock from war-driven high oil prices could weigh not only on inflation but on US growth itself.


sjy@heraldcorp.com