Oil, Tariffs and High Rates Pressure the U.S. Economy Before Midterms

WASHINGTON — U.S. consumers are confronting higher prices as intensifying geopolitical conflict in the Middle East and widening trade disputes closer to home generate new energy and wholesale cost pressures. The combination is complicating the Federal Reserve’s inflation-fighting campaign and creating a formidable political challenge for the Trump administration ahead of the upcoming midterm elections.

The labor market remains highly resilient, shielding consumers from widespread layoffs even as supply-side price spikes move through the production chain. Retail inflation is rising, while borrowing costs remain high enough to freeze the domestic housing market.

The Labor Department reported that initial filings for state unemployment benefits fell to 206,000 for the week ending closest to mid-September, down from a revised 207,000 the prior week. The four-week moving average, which smooths out week-to-week volatility, also settled at 206,000. Weekly jobless claims have remained within a historically low band of 200,000 to 230,000 for the past year.

That labor-market strength keeps consumer spending robust enough to stave off a broader economic recession, but it also risks sustaining wage growth at a level that could keep service-sector inflation elevated and complicate the Federal Reserve’s path toward its 2% inflation target.

Meanwhile, crude prices surged past significant milestones as Washington’s ongoing war with Iran and renewed fighting in the Middle East drove a sharp spike in global energy markets. U.S. oil topped $100 a barrel, while Brent crude, the international benchmark, flirted with $110 a barrel overnight before pulling back 3% to settle at $104.42 on Friday.

According to the motor club AAA, the national average for diesel fuel reached a record $6.05 a gallon, up from $5.85 the prior week and well above the $3.70 average recorded during the same period last year. Diesel is the primary fuel for commercial freight networks, including long-haul trucking, maritime shipping and Class I freight railroads.

Higher diesel prices have translated directly into increased distribution costs for retail goods. To protect profit margins, a growing number of businesses have begun passing those expenses to consumers through fuel and transport surcharges on home deliveries and online retail orders.

The Trump administration has also intensified its trade war with Canada, the United States’ largest foreign supplier of crude oil and a critical partner in automotive and industrial supply chains. The imposition of tariffs threatens to erect new cost barriers as efforts to stabilize domestic prices continue.

The wholesale pipeline is already registering those pressures. The Labor Department said the Producer Price Index, which measures price changes from the perspective of domestic producers and wholesalers before goods reach consumers, rose 5.4% year-over-year in August. The annual rate was up from 4.8% in July but remained below the year’s peak of 5.9% in May, when the conflict with Iran first drove energy costs upward. Wholesale prices climbed 0.4% on a monthly basis in August, compared with a 0.1% increase in July.

The Consumer Price Index rose 3.4% in August from a year earlier, matching July’s annual rate. Monthly consumer inflation accelerated to 0.4% from 0.1% the previous month, driven primarily by the increase in retail gasoline and diesel prices.

Inflation first began surging more than five years ago as the global economy emerged from the disruptions of the COVID-19 pandemic. The prolonged period of elevated prices has soured public sentiment regarding the administration’s economic stewardship and made inflation a central vulnerability for Republicans seeking to maintain legislative majorities in the looming midterm elections.

The Federal Reserve has maintained a restrictive monetary policy stance to counter persistent price pressures. Long-term borrowing costs have consequently remained near multi-month highs, restricting activity in the residential real estate market.

Data from mortgage buyer Freddie Mac showed that the average 30-year fixed mortgage rate rose for a third consecutive week, reaching 6.76% from 6.71% the previous week. A year ago, the rate was 6.35%. The current average is the highest for the 30-year loan since June 26, 2025, when it reached 6.77%.

The average 15-year fixed-rate mortgage also became more expensive, rising to 6.09% from 6.04% last week and compared with 5.5% a year ago. Elevated rates have eroded the purchasing power of prospective buyers, adding hundreds of dollars to monthly mortgage payments.

They have also created a “lock-in effect,” with current homeowners holding low pandemic-era rates refusing to list their properties. The National Association of Realtors reported that existing home sales fell 2% from July to August, reaching a seasonally adjusted annual rate of 3.98 million units.

August marked the third consecutive monthly decline in sales volume, along with a 1.2% decrease from August of last year. The total fell just short of the 4 million-unit annual pace projected by economists surveyed by FactSet.

On Wall Street, investors weighed fears of prolonged high interest rates against signs of economic resilience during a volatile week. U.S. stocks rebounded strongly on Friday as global oil prices pulled back slightly and the CPI report matched consensus expectations, avoiding a worst-case scenario.

The rally enabled the benchmark S&P 500 index to snap a four-day losing streak, its longest stretch of consecutive declines since June. The Dow Jones Industrial Average and the tech-heavy Nasdaq Composite also finished the week’s final trading session in positive territory.