US Economy Hit with Double-Whammy as Consumer Spending Slows and Rates Rise

The US economy is facing a double-whammy that could put a squeeze on wallets. Consumer spending, which has been a crucial driver of growth, is showing signs of slowing down. This slowdown comes as the Federal Reserve starts raising interest rates, which will further slow down the economy.

According to economists and market experts, consumer spending is expected to moderate in the second half of 2026 due to several factors. One reason is that the boost from larger tax refunds is fading away. The contribution of taxes and benefits to US GDP is projected to slow to zero by the end of this year and become a drag on the economy next year.

Another factor is the rising geopolitical uncertainty tax, which includes higher gas and food prices due to the ongoing war in Iran. Energy prices have risen, with nationwide retail gasoline prices up $1.25 per gallon on average compared to last year. This will lead to increased grocery store prices as diesel prices and agricultural commodity prices rise.

The housing market is also expected to slow down, with mortgage rates climbing above 7% for the first time in over a year. As home sales decline, so too do purchases of major household goods like furniture, appliances, and carpeting.

Meanwhile, the Fed continues to tighten monetary policy by raising interest rates. Additional hikes are likely on the horizon, which will slow down the economy further. The main reason for these anticipated hikes is that inflation progress has stalled, with core inflation remaining above 3%.