US consumer confidence took an unexpected hit in September, sinking to 47.8 from August's 51.7, according to preliminary data released Friday by the University of Michigan. The reading fell short of every economist's forecast, as rising gasoline prices and renewed trade tensions intensified worries about the cost of living.

Consumers now expect prices to climb 4.6% over the next year, a notable jump from August's 4.0% projection. Longer-run inflation expectations for the next five to ten years also inched up to 3.4% from prior levels, signaling that persistently higher energy costs are re-anchoring inflation concerns among American households.

The uptick in both short- and long-term inflation expectations coincides with gasoline prices that have surged to their highest September level on record, as the ongoing Iran conflict continues to pressure energy markets. Soaring fuel costs are eroding real household income, adding to widespread dissatisfaction over elevated living expenses.

Earlier Friday, separate data showed the US consumer price index (CPI) rose 3.4% year-over-year in August, while core CPI, which excludes food and energy, gained 0.3% month-over-month — evidence that inflationary pressures remain entrenched.

Against this backdrop, consumer views on interest rates have shifted notably. For the first time since 2023, a majority of consumers now anticipate higher interest rates over the coming year, reflecting growing apprehension about further increases in borrowing costs as the Federal Reserve acts to contain inflation.

Sentiment toward the broader economy has also soured. September's assessment of current economic conditions, while only slightly lower at 50.9 versus August's 51.9, was overshadowed by a steep decline in the expectations index, which fell to 45.8 from 51.5 — the weakest outlook since July 2022. Consumers also downgraded their evaluations of both their current financial situation and future financial prospects, underscoring mounting pressure at the household level.

Notably, recent employment data still show signs of resilience. Labor Bureau statistics released last week revealed a sharp acceleration in August job growth alongside a stable unemployment rate, suggesting labor market momentum may be firmer than previously anticipated. Nevertheless, job openings remain at relatively subdued levels, while initial jobless claims hover near historic lows — pointing to a labor market characterized by low hiring and low layoffs.

The deterioration in consumer confidence is not confined to any single political group. University of Michigan data show declines in sentiment among both Democratic and Republican respondents. Strikingly, only 35% of Republican consumers now view the government's economic performance favorably — the lowest reading since President Donald Trump returned to the White House last year.

Joanne Hsu, chief economist of the University of Michigan's Surveys of Consumers, commented: "This month, assessments of government economic policies deteriorated by about 10% and remain well below the level seen in February 2026, prior to the outbreak of the Iran conflict." She added that even Republican consumers, who typically show stronger approval of the current administration's economic agenda, have registered a marked decline in policy endorsement.

Overall, while the US labor market retains some resilience, rising gasoline prices, persistent inflation, and renewed trade frictions are simultaneously undermining confidence in both current conditions and the economic outlook. The sharp leap in one-year inflation expectations from 4.0% to 4.6%, coupled with a growing majority anticipating further rate hikes, indicates that high living costs and expensive borrowing are re-emerging as pivotal forces shaping American consumer sentiment. Survey responses were collected from August 25 through September 7.