Sentiment among U.S. consumers deteriorated further in September.

The University of Michigan's Index of Consumer Sentiment fell to 47.8 in the preliminary September reading from 51.7 in August, a 7.5% monthly drop that leaves it the second-lowest print in the survey's history and 13.2% below where it stood a year ago.

The damage was almost entirely forward-looking. The Index of Consumer Expectations plunged 11.1% to 45.8, while Current Economic Conditions slipped just 1.9% to 50.9.

Fuel Prices Did The Damage

Surveys of Consumers Director Joanne Hsu said sentiment has now fallen for a second consecutive month, with Democrats and Republicans both posting sizable declines while independents were little changed.

Year-ahead expectations for personal finances and for business conditions both plunged.

"With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come," Hsu said.

AAA put the national diesel average at a record $6.06 a gallon on Friday, the first time it has crossed $6 and a 63% increase from a year ago. Regular gasoline averaged $4.30, up 13 cents in a week and 34% over 12 months.

Diesel matters disproportionately because it prices freight, farming and construction rather than commuting, which is how an energy shock migrates into the cost of everything else.

In August, the consumer price index rose by 3.4% from a year earlier, as energy costs rose more than 16% annually.

The Number The Fed Cannot Ignore

The survey's year-ahead inflation expectations jumped to 4.6% from 4% in August, the highest since June and far above the 3.4% recorded in February before the Iran conflict began.

Long-run expectations ticked up to 3.4%, breaking three straight months at 3.3% and sitting above the 2.8% to 3.2% range that prevailed through 2024.

Policymakers watch the series for signs that expectations are drifting away from the 2% target.

The Fed Is Now Expected To Hike Next Week

Odds of a rate hike at next week's meeting climbed to roughly 86% after the CPI release, from about 70% before it.

Despite higher rate-hike expectations, equities rallied.

By late morning the Dow was up 492 points, or 0.9%, the S&P 500 and Nasdaq 100 were both higher and the CBOE Volatility Index had dropped 10.5% to 15.96.

The relief came from crude, which reversed hard after Gulf foreign ministers were reported to be meeting their Iranian counterparts in Oman on Monday to negotiate shipping through the Strait of Hormuz, and after the International Energy Agency cut its 2026 demand outlook.

WTI fell 2.8% to $99.63, though it remains up roughly 9% on the week.

Separately, Oracle Corp. (ORCL) jumped after reporting $664 billion in remaining performance obligations, lifting the AI hardware complex.