Washington — The US economy was supposed to take off Make a fussfueled by an unusually large jump in tax refunds from President Donald Trump’s tax-cut legislation. However, high fuel prices are on track to eat up those refunds, leaving most Americans with little to spend.
“Next spring is expected to be the biggest tax refund season ever,” Trump said in a prime-time speech. In December The aim was to address voters’ concerns about the economy and the continuing rise in prices.
But that was before Iran warWhich started on February 28th. Oil and gas prices rose Since then, the average price of gas nationwide reached $3.94 on Sunday, up more than a dollar from just the previous month.
Gas prices are likely to remain high for some time, even if the war ends soon, because shipping and production have been disrupted and will take some time to recover. Economists now expect growth to slow this spring and throughout the entire year, as dollars spent on gas are less likely to be used for restaurant meals, new clothes or entertainment.
Low- and middle-income households are likely to be particularly hard hit, because they receive smaller amounts of refunds, while spending a larger percentage of their income on gas.
“The energy shock will hit those with the least protection,” said Alex Jaquez, head of policy at the left-leaning Groundwork Collaborative and a former Biden White House economist. “And it doesn’t look like those tax refunds are going to be here to save them.”
Neil Mahoney, director of the Stanford Institute for Economic Policy Research, estimates that gas prices could peak in May at $4.36 a gallon, based on oil price forecasts by Goldman Sachs, followed by slow declines for the rest of the year. The idea that gas prices fall much more slowly than they rise has become so ingrained among economists that they refer to it as the “rocket and feather” phenomenon.
In this scenario, the average family would pay $740 more for gas this year, roughly equivalent to the $748 increase in refunds that the Tax Foundation estimated the average family would receive.
As of March 6, refunds had risen by much less than that, according to IRS data: They averaged $3,676, up $352 from $3,324 in 2025. However, average refunds may rise as more complex returns are filed.
Other estimates show similar effects. Economists at consulting firm Oxford Economics estimate that if gas prices average $3.70 a gallon all year, it would cost consumers about $70 billion — more than $60 billion in increased tax refunds.
The spike in gas prices comes with many consumers already in a precarious position, especially compared to 2022, when gas prices also rose due to Russia’s invasion of Ukraine. At the time, many households still had large bank accounts from pandemic-era stimulus payments, and companies were hiring quickly and raising wages sharply to attract workers.
Now, hiring It is almost at a dead end The saving rate among Americans has also declined steadily in the past few years as many families borrow more to support their spending.
“When you start looking from a consumer perspective, you see people who have maxed out their credit cards, using ‘buy now, pay later’ for their grocery shopping,” said Julie Marghetta Morgan, president of the Century Foundation, a think tank. “They are succeeding at the moment, but this could fall apart very quickly.”
The effect is likely to exacerbate the problem K-shaped novel. Analysts said that the US economy, where high-income families performed better than low-income families. The bottom 10% of earners spend nearly 4% of their income on gasoline, according to Pantheon Macroeconomic Estimates, while the top 10% spend just 1.5%.
For now, most analysts still expect the US economy to expand this year, albeit more slowly, given the gas price shock. Higher gas prices will likely worsen inflation in the short term, but over time weak spending will also slow growth.
American consumers and businesses have repeatedly weathered shocks since the pandemic — rising inflation, rising interest rates, tariffs — and kept spending, defying fears that the economy could slide into recession. Many economists point out that the proportion of their income that Americans spend on gas and other forms of energy has declined significantly compared to what it was a decade ago.
Gas spending through the bank’s credit and debit cards rose 14.4% in the week ending March 14 compared with a year ago, Bank of America Institute data released Friday showed. Before the war, this spending was 5% less than the previous year, which was beneficial for consumers.
Spending on discretionary items — restaurant meals, electronics, travel — is still growing, a testament to consumer resilience, the institute said. But there is little sign of growth accelerating, as many economists had hoped.
“The longer gasoline prices persist, the more this will gradually increase discretionary consumer spending,” said David Tinsley, the institute’s chief economist.
Other analysts expect growth to slow due to the war. Bernard Yaros and Michael Pearce, economists at Oxford Economics, expect the US economy to grow just 1.9% this year, down from the previous estimate of 2.5%.
“We had expected an increase in spending from the bumper tax refund season, but the rise in gasoline prices, if they persist, would offset this increase,” they wrote.