US Consumer Sentiment Hits Record Low as Middle East Conflict Drives Inflation

Key points

• The University of Michigan's Consumer Sentiment Index dropped to 46.3 in October, down from 48.1 in September, marking the third consecutive monthly decline.
• The measure of current economic conditions hit an all-time low of 44.7, while one-year inflation expectations rose to 4.7%.
• The US-Israeli war with Iran has increased energy prices, prompting the Federal Reserve to raise interest rates by 25 basis points in September to a 3.75%-4.00% range.
• Sentiment deteriorated most sharply among lower-income consumers and those with smaller stock portfolios, while higher-income households continue to drive spending.
• Economists expect the Federal Reserve to raise rates again in December, despite weaker September payroll data and cooler inflation readings in July and August.

Background

This decline follows a trend of worsening consumer confidence since February 2026, when inflation expectations began rising. In September, the sentiment index was 47.8, the second-lowest on record. Earlier analysis noted a 'sentiment disconnect' where macroeconomic indicators like GDP and employment remained strong, but public mood deteriorated due to high costs of living and political headwinds.

How outlets are covering it

Reuters (via Yahoo Finance) emphasizes the political implications, noting that Trump's approval rating is at its lowest amid economic angst, which could impact the November 3 midterm elections. CNN highlights the 'tailspin' in confidence, focusing on the broad frustration across the political spectrum. Both sources agree on the data but differ in emphasis: Reuters focuses on the 'K-shaped' economy and spending resilience among the wealthy, while CNN frames the story around the approaching elections and public anger.

Why it matters

The near-record low sentiment signals deepening economic anxiety among Americans, particularly lower-income households, despite resilient spending from the wealthy. This divergence could influence voter behavior in the upcoming midterms and signal potential risks to the broader economy if stock markets correct, as noted by ING's James Knightley.

What to watch

The Federal Reserve is expected to raise interest rates in December. Economists will watch for a potential stock market correction, which could quickly alter the current spending patterns driven by higher-income households. The outcome of the November 3 midterm elections will also be influenced by these economic sentiments.