More than six weeks after the outbreak of the war with Iran, its impact on the US economy is gradually emerging in both obvious and less obvious ways. The most direct impact is the sharp rise in energy costs, while its potential drag on broader economic growth is quietly taking hold.

Although market concerns about an economic recession have intensified since the outbreak of the conflict, most economists believe that the war's overall impact on U.S. gross domestic product (GDP) will be relatively limited, likely reducing the annual growth rate by only a few tenths of a percentage point.

However, this assessment rests on a crucial premise: the duration of the conflict. If the current ceasefire agreement holds, the inflationary impact will gradually subside; but if the conflict reignites, the future situation will become more complex and could threaten the fragile growth momentum shown by the US economy over the past two quarters.

Mike Skordeles, head of U.S. economics at Truist Consulting, said: "The war will certainly cut some growth, but we can weather it. The bigger issue is the uncertainty."

Uncertainty continues to loom over the US economy

Uncertainty has loomed over the U.S. economy throughout the past year. This uncertainty has persisted from President Trump's announcement of the "Liberation Day" tariffs in early April 2025 to his increasingly assertive foreign policy, with the Iran war further exacerbating the pressure.

The main questions facing us today include: Is the surge in inflation during the war merely a temporary phenomenon? How will the war affect consumers, who are the main drivers of US economic growth? How much will other countries, which are less energy-independent, be impacted? And at the heart of all this lies how the Federal Reserve and other central banks will respond.

Scodler points out: "The situation in Iran is important, and oil prices are important, but other factors such as income are more critical, and they are still supporting the economy. On the other hand, the Fed is delaying, I think, just delaying rather than canceling further rate cuts, postponing them until the second half of this year or even later. This means that consumers' borrowing costs will rise."

Consumers are under direct pressure at gas stations

High interest rates come at a disadvantage. The average gasoline price across the U.S. has now risen to $4.10 per gallon, directly impacting consumers. Rising mortgage rates have also led to an all-time low in existing home sales in March, the lowest level in nine months.

Despite this, Bank of America data shows that debit and credit card spending surged 4.3% month-over-month in March, the largest increase in more than three years. Gas station spending jumped 16.5% in particular. Even excluding gas station spending, the overall growth was a healthy 3.6%, indicating that consumers' wallets remain resilient and can withstand price increases.

Another factor supporting consumer spending is the significant increase in tax refunds following last year's amendments to the Big One Act. According to IRS data, the average refund this year reached $3,521, an 11.1% increase compared to the same period in 2025.

However, actual consumption growth does not align with consumer confidence survey results. The University of Michigan Consumer Sentiment Index has fallen to its lowest level since the 1950s , a period marked by major shocks including multiple wars, the stagflation of the 1970s, the 9/11 attacks in 2001, the global financial crisis, and the COVID-19 pandemic.

However, the correlation between low consumer confidence and actual economic activity is often weak. People often say one thing and do another.

David Kelly, chief global strategist at JPMorgan Asset Management, said in his weekly market commentary: "A decline in consumer confidence has never been a reliable predictor of actual consumer behavior. We expect actual consumer spending to continue to grow, albeit at a slower pace, projecting 0.8% growth this year and 1.7% in 2027."

Oil prices remain a key variable.

RSM Chief Economist Joseph Brusuelas believes that $125 per barrel for WTI crude oil will be a significant watershed moment, "at which point it will truly become an economic issue." Currently, oil prices are around $91 per barrel, far below the brief high of $115 reached in early April.

Bruce Lass stated, "Only at that level will demand destruction accelerate and amplify. We are still far from that point. I don't yet believe we have structural trauma because I don't know the extent of the damage to actual production and refining capacity in the Middle East."

Economic growth forecasts have been generally lowered.

Economists generally expect the net impact of the war to be a slowdown in economic growth, but not a severe collapse.

Goldman Sachs lowered its 2026 U.S. GDP growth forecast to 2% (annualized quarter-on-quarter) a few days ago, a 0.5 percentage point reduction from its previous forecast. The Atlanta Fed expects first-quarter economic growth to be only 1.3%, better than the 0.5% in the fourth quarter of last year, but lower than its previous estimate of 3.2%.

Goldman Sachs also noted that "slower economic activity growth is likely to translate into weaker job growth and higher unemployment," and raised its unemployment rate forecast for the end of 2026 to 4.6%, up 0.3 percentage points from the March level.

In a report, Goldman Sachs economists Jessica Rindels and David Mericle stated that soaring oil prices, increased uncertainty, and a strong March jobs report have collectively put the Federal Reserve in "wait-and-see mode." They expect that rising unemployment and limited improvement in inflation (with the fading effects of tariffs outweighing energy price transmission) will provide the Fed with the conditions to cut interest rates once each in September and December.

This forecast is more aggressive than current market pricing, which currently expects rate cuts no earlier than mid-2027, while Federal Reserve officials at their March meeting only projected one rate cut this year.

Inflation remains the biggest obstacle for the Federal Reserve.

Inflation is the most immediate obstacle facing the Federal Reserve. Prior to 2026, the market had expected the Fed to continue cutting interest rates to support the slowing labor market; however, job growth has almost stagnated over the past year (and even turned negative after excluding healthcare-related jobs).
If inflation remains high, it will disrupt the Federal Reserve's plans and could trigger a series of negative chain reactions within the year.

global spillover effects

Inflation data is the area where the impact of war is most directly reflected, and the current situation is mixed.

In March, the overall U.S. Consumer Price Index (CPI) rose 0.9% month-over-month and 3.3% year-over-year. The core CPI, excluding food and energy, rose only 0.2% month-over-month and 2.6% year-over-year, still above the Federal Reserve's 2% target, but on the right track.

The Producer Price Index (PPI) also showed an overall month-on-month increase of 0.5%, with the core PPI rising by only 0.1%.

It is worth noting that the New York Fed’s monthly consumer survey showed that the one-year inflation expectation in March was 3.4%, up 0.4 percentage points from the previous month, but far lower than the 4.8% in the University of Michigan survey.

Combating inflation is not just a problem for the United States; Europe, and especially Asia, may be more affected because Asian economies are highly dependent on Middle Eastern energy.

Scodels stated, "What we are feeling is an energy price shock, not a real supply shock. Asia is the one that is truly being hit hard, because they are the largest energy consumers."

The war has disrupted global supply chains, and this impact is expected to become more pronounced in the coming months. As the flow of raw materials tightens and the transmission effects of rising energy prices gradually emerge, the New York Fed's Global Supply Chain Stress Index rose to its highest level since January 2023 in March.

It remains uncertain whether the United States will be affected by the ripple effects, but the prevailing view is that the impact will be limited.

Scodels concluded, "While energy costs have risen in the past few years, they remain low compared to previous decades. We will weather this storm. It will affect growth, but it's far from 'game over.'"

Overall, the impact of the Iran war on the US economy remains manageable, but high oil prices, rising uncertainty, and potential supply chain pressures are testing the resilience of the US economy. The future will depend heavily on whether the conflict continues and the Federal Reserve's policy response.