The month of May 2026 brought some important news on the economy. Jerome Powell’s tenure as chair of the Federal Reserve came to an end. Kevin Warsh, President Trump’s nominee, won Senate confirmation, albeit on a thin margin, and will take over as the new Fed chair.

Also stealing the spotlight was the new US inflation data. The Consumer Price Index was up 3.8% in April. Analysts believe the Iran conflict has pushed inflation to its highest level in almost three years

Then came the Producer Price Index (PPI) from the Bureau of Labor Statistics (BLS) which showed an increase of 6%, pushing the cost of goods for producers. This means consumers can expect higher prices in the coming weeks and months.

Kevin Warsh, the new Fed chair, will assume office at a very challenging time for the economy. He will have to perform the balancing act with higher inflation and a simultaneous expectation from the White House to reduce interest rates.

Further accentuating the landscape is the pressure on consumer lending faced by banks. Higher delinquency in consumer lending portfolio will continue to squeeze the sector, particularly the community banks. The new Fed chair’s actions will be keenly watched.

At the grocery store, prices of several items like fresh vegetables, seafood etc. soared increasing the hardships. ABC News reports the jump in food prices was due in part to the historic oil shock caused by the Iran war. Higher fuel costs, particularly diesel for suppliers, results in higher retail prices at the store as the increased costs are passed on to the consumer.

Not to forget the impact of tariffs imposed last year. They have also helped push up prices. The current hardships faced by American consumers due to tariffs and Iran war may not subside soon. Analysts believe that prices will remain high at least till the end of this year.

It must be noted here that the International Energy Agency (IEA) had earlier warned of depleting stock of fuel. It has also warned that even if the war ended right away, it would take several months for the fuel supply chain to be restored.

The serious damage that has been reported to several petroleum refineries, storage facilities and liquefied natural gas (LPG) plants in the Gulf will take several months to restore. This means the fuel supply chain shocks will create several downstream bottlenecks.

The coming weeks will likely witness supply chain disruptions - from fertilizers to several raw materials that are inputs for key industries including farming and pharmaceuticals. The prospects of a global food scarcity and life-saving medical supply shortages are real in the coming months. As always, the greatest impact of these disruptions will most likely be borne by poor nations in Africa, Asia and South America.

As India’s Prime Minister Narendra Modi very presciently pointed out in his speech at The Hague in The Netherlands on 16 May 2026, the hard-earned progress achieved in recent decades in human health care and food security risks being wiped out if the Iran war prolongs.

For the American consumer, the collateral impact of the Iran war could not have come at a worse time. Layoffs, high prices at the gas pump, restaurant and grocery store are all hurting large numbers of people.

This is already showing in the steep rise in credit card balances and severe delinquencies in consumer loan portfolio of banks. Per the latest Quarterly Report on Household Debt and Credit published by the Federal Reserve Bank of New York (FRBNY) total household debt increased by $18 billion, or 0.1 percent, to reach $18.8 trillion in the first quarter. 

Percentage of credit card balances that were seriously delinquent rose from 12.7% in Q4 2025 to 13.1% in Q1 2026. On the other hand, serious delinquency in auto loans was at its highest in 32 years at 5.6% in Q1 2026, up from 5.4% in Q4 2025.

The steep rise in risk of default in these two key consumer loan portfolios is a matter of concern, when seen in the overall macroeconomic context. It could be the canary in the coal mines for the general health of the banking sector in the coming weeks and months.

Much has been spoken and written about the K-shaped economy. In essence, the affluent classes are doing very well in the US – their travels, investments and other discretionary spendings are showing no signs of relenting. On the other hand, as the ABC News report cited earlier points out, millions of households are facing immense pressure in affording their living expenses. Lower income segments are facing intense pressure in paying their bills.

Many high-paying jobs were lost in the first half of this year. This is from big-name high-tech companies like Meta, Amazon, LinkedIn, Intel, Dell etc. Reports indicate that over 375,000 jobs have been lost in the US since January of this year. This does not include smaller layoffs below reporting thresholds. What is painful to note is that most of these jobs are gone forever.

Analysts have attributed the layoffs to AI. But there is also a powerful dynamic behind the layoffs. Major companies are aggressively reducing operating expenses as they plough funds into building massive datacenters. They do not want to be left out in the AI driven economy that is unfolding.

Given the multiple crosscurrents out there in the economy now, it may be sometime before these laid off workers find new jobs. Consequently, millions of Americans families are seeing the erosion of their ability to pay their bills and spend.

The collective result is the deflation in consumer confidence, and a huge affordability crisis looms large in the near term. Kevin Warsh has a key role to play in averting this affordability crisis.