Business executives and economists warn that U.S. consumers will face a cash crunch within months as tax rebates from the Trump administration's policy expire and war in Iran pushes up oil prices, impacting the broader economy.

Large tax rebates stemming from former President Trump's signature budget legislation once supported Americans in maintaining high levels of spending. However, retailers are bracing for a pullback in consumption triggered by rising fuel costs, which could slow growth in the world's largest economy as early as this summer.

Gregory Daco, Chief Economist at EY-Parthenon, stated: "The benefits from the tax rebates are largely being offset by heightened tensions in the Middle East. The longer the conflict persists, the greater the risk of the economy facing a challenging mix of high inflation and persistently weak consumption growth."

Consumption serves as the core engine of the U.S. economy, accounting for about two-thirds of total output and has been a key driver of growth in recent years.

Following the pandemic, robust consumer spending, combined with substantial investment by technology firms and steady productivity gains, propelled U.S. economic growth to outpace that of most developed nations.

Brian LeBlanc, Head of Economic Analysis at PNC Bank, noted: "A key reason the U.S. economy has withstood high interest rates, elevated inflation, and multiple shocks in recent years is the solid financial health of households. Even as job and income growth has moderated, consumers have retained the capacity to spend."

The substantial tax rebates originated from the "Big and Beautiful Act," the core budget legislation from the Trump era that took effect in July 2025, which implemented large-scale tax cuts.

Major retailers, including Walmart and Target, indicated during their earnings calls this week that the rebates provided a significant boost to sales.

Data on debit and credit card spending from 4 million U.S. households shows that, despite the share of income spent on fuel continuing to rise, consumer spending on other goods has remained resilient.

Home improvement retailer Lowe's anticipates that rebates will continue to support spending into June. Chief Financial Officer Brandon Sink suggested consumers may have held onto some rebate funds due to "uncertainty."

However, the rebates distributed starting in February are nearing depletion. Retailers expect that rising oil prices will further squeeze spending on non-essential items, with effects rippling across the economy. In April, grocery prices rose by 2.9%, diesel prices approached record highs driving up logistics costs, and fruit and vegetable prices surged by 6.1%.

Jim Lee, Chief Financial Officer of Target, stated that the war is exacerbating cost-of-living pressures, and the spending boost from the rebates "will gradually fade through the second half of this year."

Shane O'Kelly, CEO of auto parts retailer Avis Parts, said that as the "rebate tailwind fades," sales during the upcoming summer driving season could face slowing pressure.

Consumer pressure has been mounting since the outbreak of conflict in the Middle East on February 28. Iran's blockade of the Strait of Hormuz, a chokepoint for one-fifth of global crude oil shipments, sent gasoline and diesel prices soaring by 50%.

PNC data shows that credit card spending on fuel has surged nearly 40% year-over-year in recent weeks. As a necessity, consumers have little ability to cut back on fuel expenses.

Bob Eddy, CEO of warehouse retailer BJ's Wholesale Club, noted: "With high fuel prices, American families are feeling the pinch. In April alone, our members' spending at our club fuel stations increased by $143 million compared to last year."

The conflict has also caused inflation to outpace wage growth, leading to a decline in real household income. Nathan Sheets, Global Chief Economist at Citigroup, said: "Since the middle of last year, wage growth has consistently lagged inflation. First, it was Trump's tariff policies, and recently, the situation with Iran has driven up oil and commodity prices, causing price increases to far outstrip wage gains."

Michael Pearce, U.S. Chief Economist at Oxford Economics, believes that the consumption slowdown triggered by the war with Iran will become a "stumbling block" for U.S. economic growth: "The U.S. economy had promising prospects for this year, but rising oil prices will significantly weigh on that growth."

Some lower-income households, who benefited less from the Trump-era tax cuts, are already feeling the strain.

Retail sales in April grew 4.9% year-over-year, primarily driven by higher-income groups. These groups were the biggest beneficiaries of the Trump budget legislation and spend a smaller share of their income on fuel.

Bank of America estimates that tax rebates increased by about 13% for the top third of earners by income, compared to just 6% for the bottom third.

Mike Reid, Chief Economist at RBC, stated: "The rebate benefits have flowed more to households least affected by inflation. It's the middle-income groups that are truly under pressure."