Here are all the ways the Iran war has affected the U.S. economy so far

The Iran war is starting to show up in the U.S. economy in ways both obvious and not so much, with soaring energy costs leading the impact and potential hits on broader growth simmering beneath the surface.

Though recession fears have grown since the fighting began more than six weeks ago, most economists think the war will have only modest effects on gross domestic product — maybe shaving off a few tenths of a percentage point overall.

But there’s an important caveat, mainly around duration: Should the current ceasefire hold, inflationary impacts will wear off. If fighting resumes, however, the future becomes much murkier, threatening the fragile growth the economy has seen over the past two quarters.

“It’s going to gouge out some of the growth, but we’ll weather through it,” said Mike Skordeles, head of U.S. economics at Truist Advisory Services. “The bigger issue is the uncertainty.”

Indeed, uncertainty has hung over the U.S. economy for most the past year, ever since President Donald Trump unveiled his “liberation day” tariffs in early April 2025 and continuing through what has become an increasingly muscular and aggressive foreign policy.

The war has intensified the pressure, resulting in a host of questions: whether the inflation surge during the war is temporary, how much conditions will affect the consumers who drive most U.S. economic growth, and the extent to which less energy-independent nations are hurt by the war fallout.

Underlining all of it is how the Federal Reserve and other central banks will respond.

“Iran’s important. The price of crude oil is important. Other things matter more. Incomes and other things are continuing to hang in there,” Skordeles said. “The other piece of that uncertainty is by the Fed that’s delaying — and I think it’s delaying, not canceling — any sort of additional cuts, pushing them into the back half or even later in the year. That means you’re elevating borrowing costs for consumers.”

Suffering at the pump

High rates come at a bad time with prices at the pump — most recently at national average $4.10 a gallon, according to AAA — already hitting consumers. A spike in mortgage rates also helped drive existing home sales in March to their lowest in nine months.

Still, debit and credit card spending surged 4.3% in March, the most in more than three years, according to Bank of America.

That was powered by a 16.5% jump in spending at gas stations. But there also was “healthy growth” of 3.6% excluding gas, the bank said, indicating that wallets were still resilient enough to handle the increase.

One factor expected to help sustain consumers is bigger refund checks following changes made in last year’s One Big Beautiful Bill Act. The average refund this year has been $3,521, an 11.1% increase over the same period in 2025, according to IRS data.

Higher spending, though, doesn’t square with consumer sentiment surveys.

In fact, the widely followed University of Michigan survey showed sentiment at a record low in numbers going all the way back into the 1950s — through multiple wars, 1970s stagflation, the Sept. 11, 2001 terror attacks, the global financial crisis and the Covid pandemic.

But the link between low sentiment and economic activity can be tenuous. Consumers can often say one thing and do another.

“A fall in consumer sentiment has never been a reliable predictor of actual consumer behavior and we expect real consumer spending to continue to grow, albeit slowly, rising by 0.8% over the course of this year and 1.7% over the course of 2027,” David Kelly, chief global strategist at JPMorgan Asset Management, said in his weekly market note.

Oil prices will be key.

Joseph Brusuelas, chief economist at RSM, drew a line at $125 a barrel for West Texas Intermediate crude, the U.S. benchmark, as the point where “it becomes more of an economic problem.” Oil traded near $91 Wednesday morning, below a $115 peak it briefly topped earlier in April.

“That’s where demand destruction begins to accelerate and broaden out. So we’re some ways away,” Brusuelas said. “I’m not ready to say that we’ve experienced structural scarring. We’re not there yet, because I don’t know the extent of the damage to physical production and refining capacity,” in the Middle East.

Lowering expectations

Economists expect the net impact of the war will be somewhat slower growth but not a major breakdown.

Goldman Sachs a few days ago cut its GDP forecast this year to 2%, measured from fourth quarter to fourth quarter, a reduction of half a percentage point from its prior outlook. The Atlanta Fed projects that first-quarter growth will total just 1.3%, better than the meager 0.5% growth rate in Q4 but below earlier estimates for 3.2%.

The Wall Street investment bank also noted that “weaker activity growth is likely to translate to weaker hiring and a higher unemployment rate,” which it now sees at 4.6% by year’s end, just a 0.3 percentage point gain from the March level.

Combined, Goldman expects the impact to push the Fed into multiple interest rate cuts later this year.

“The spike in oil prices, increased uncertainty about the outlook, and the strong [March] employment report have kept the Fed firmly in wait-and-see mode for now,” Goldman economists Jessica Rindels and David Mericle said in a note. “We expect a combination of rising unemployment and limited progress on inflation — where tariff effects dropping out should outweigh incoming energy passthrough — will make the case for two cuts in September and December.”

That’s a more aggressive forecast than current market pricing, which indicates no cuts until at least mid-2027. Fed officials in March penciled in one cut.

The most obvious obstacle standing in the Fed’s way is inflation.

Prior to 2026, the expectation was that the central bank would continue lowering rates to support a slowing labor market. Job growth has been little changed over the past year, and negative when subtracting health care-related positions.

But persistent inflation would derail the Fed and possibly set off a negative chain of events through the year.

Global fallout

Inflation data is where the war’s impact shows up most directly, and the news so far has been mixed.

Predictably, headline inflation has leaped higher. The consumer price index for all items rose 0.9% in March, putting the annual inflation rate at 3.3%. Stripping out food and energy, though, left the monthly increase at just 0.2% and the annual core level at 2.6% — still above the Fed’s 2% bogey but moving in the right direction.

Similarly, the producer price index, which measures increases at the wholesale level, accelerated 0.5% on headline but only 0.1% for core.

Interestingly, the New York Fed’s monthly consumer survey, which is much less volatile than the University of Michigan’s version, saw one-year inflation expectations in March at 3.4% — up 0.3 percentage point monthly but well below the 4.8% outlook from the Michigan survey.

Dealing with inflation isn’t just a U.S. problem. Indeed, the bigger impact, particularly from the oil component, could be felt more in Europe and especially Asia, which relies heavily on Middle East fuel sources to power its economies.

“We’re feeling a price shock because of energy, but not really a supply shock,” Skordeles, the Truist economist, said. “Asia is the one getting clobbered, because they’re the big users.”

The war has shaken up supply chains, an impact expected to be felt more keenly in the coming months as raw materials flows tighten and start to reflect a pass-through from the higher energy prices.

The New York Fed’s Global Supply Chain Pressure Index in March hit its highest level since January 2023.

Whether there are knock-on effects in the U.S. is still undetermined, though the sentiment — so far — is that the impact will be limited.

“Energy costs, although they’ve increased in the last few years, they’re still much cheaper than they are relative to prior decades,” Skordeles said. “We’ll suffer through it. It’ll impact growth, but it’s not game over.”