Oct 7, 2026 · 6 min

Trump weighs fuel-tax relief as Gulf War raises political costs

UBS On-Air: Paul Donovan Daily Audio 'Managing expectations'

The episode connects a modest inflation effect from gasoline prices to a larger political incentive for US diplomacy with Iran.

3 key takeaways

1Gasoline feeds directly into US consumer-price calculations, making fuel costs politically visible as oil prices rise.
2Eliminating the federal gasoline tax would offset only a small share of the increase since the Gulf War began.
3Consumers have so far drawn on savings, limiting broader economic damage while political sensitivity around fuel prices grows.

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Paul Donovan argues that eliminating the full federal gasoline tax would offset only a small part of the fuel-price increase while still carrying political significance.

The brief

From London, Paul Donovan examines the Gulf War’s political costs through the debate over President Trump’s proposal to eliminate the US federal gasoline tax.

Gasoline matters disproportionately because it feeds directly into US consumer-price calculations, while diesel prices affect inflation differently and higher oil prices have not yet caused major economic damage.

Even removing the full federal gasoline tax would offset only a small portion of the fuel-price increase since the war began, limiting the policy’s economic reach.

Consumers have drawn on savings to absorb higher costs, but growing political sensitivity to fuel prices could improve the prospects of a deal with Iran.

What was said on this episode

14 statements · 4 positive · 8 negative · 1 mixed · 1 neutral

Paul Donovanon American gasoline pricesNegative1:05
US gasoline prices have risen by more than $1.25 per gallon since the war began.
“the more than $1.25 increase in gasoline prices in the States since the war began”
Listen at 1:05
Paul Donovanon American gasoline pricesNegative1:23
US gasoline prices above $3 per gallon create political costs.
“any price above that fair price level comes with a political cost”
Listen at 1:23
Paul Donovanon Settlement with IranPositive1:30
Gasoline-price sensitivity may increase investor hopes for a settlement with Iran.
“this political sensitivity to the gasoline price might again raise some investors' hopes for a move towards some kind of settlement with Iran”
Listen at 1:30
Paul Donovanon Gasoline pricesPositive1:48
Gasoline prices disproportionately influence inflation expectations.
“Gasoline prices are disproportionately important to forming inflation expectations”
Listen at 1:48
Paul Donovanon InflationMixed2:02
Inflation expectations matter economically only if people can or will change behavior.
“inflation expectations are utterly irrelevant economically, unless people have either the willingness or the means to change their behaviour in response”
Listen at 2:02
Paul Donovanon US consumer spendingNegative2:14
Spending has not slowed significantly, indicating limited willingness to respond to inflation expectations.
“The lack of any significant slowdown in spending suggests little willingness”
Listen at 2:14
Paul Donovanon Inflationary pay claimsNegative2:19
Absent inflationary pay claims, consumers have limited means to respond to higher inflation expectations.
“the lack of any evidence of inflationary pay claims suggests little means to do anything about higher inflation expectations”
Listen at 2:19
Paul Donovanon US interest-rate increaseNegative3:03
The US rate increase will have no impact on inflation.
“It'll have no inflation impact, of course.”
Listen at 3:03
Paul Donovanon US rate hikeNegative3:10
The US rate hike will increase financial stress.
“the financial stress that will be increasing as a result of the rate hike”
Listen at 3:10
Paul Donovanon U.S. economyNegative3:15
Higher financial stress will reduce the US economy’s ability to handle future shocks.
“reducing the capability of the US economy to deal with future shocks”
Listen at 3:15
Paul Donovanon Japanese labour-force cash earningsPositive3:29
Japanese labour-force cash earnings are rising faster than inflation.
“Earnings are rising more than inflation.”
Listen at 3:29
Paul Donovanon Japanese earnings growthNegative3:32
Japanese earnings growth does not currently indicate significant cost pressure.
“not in a way that suggests a significant cost pressure building in Japan at the moment”
Listen at 3:32
Paul Donovanon Bank of JapanNeutral3:46
The Bank of Japan has needed to shift from accommodative to neutral policy.
“Bank of Japan has needed to move from an accommodative to a neutral policy stance over the course of this year”
Listen at 3:46
Paul Donovanon European manufacturingPositive4:20
European manufacturing’s underlying trend has been broadly satisfactory.
“the trend of European manufacturing reality has been OK”
Listen at 4:20

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.