U.S. Economy Faced Challenges Before Iran Conflict

Slower growth, persistent inflation painted a troubling picture before oil and financial shocks from war

Mar. 13, 2026 at 4:07pm

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Economic data showed the U.S. economy was on unsteady footing even before the outbreak of war with Iran, with slower growth at the end of 2025 and inflation pressures persisting into 2026. Consumer prices rose moderately in January, while GDP growth was revised down, signaling vulnerabilities in the economy prior to the geopolitical upheaval that upended oil and financial markets.

Why it matters

The new economic data and the emerging conflict with Iran have complicated decision-making for the Federal Reserve, which has been trying to balance its dual mandates of price stability and maximum employment. The central bank faces a tricky balancing act as it seeks to address rising inflation without further hampering economic growth.

The details

The Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, rose 0.3% in January on a monthly basis and 2.8% annually. The 'core' inflation reading, which strips out volatile food and energy prices, increased 0.4% monthly and 3.1% annually - a full percentage point above the Fed's 2% target. Meanwhile, GDP growth for the last three months of 2025 was revised down to a 0.7% annual pace. Analysts point to factors like tariffs, AI-driven shortages, and rising healthcare costs as contributors to the persistent inflation.

  • In January 2026, the PCE price index rose 0.3% monthly and 2.8% annually.
  • In the last three months of 2025, GDP growth was revised down to a 0.7% annual pace.

The players

Omair Sharif

Founder of the research firm Inflation Insights.

Claudia Sahm

Chief economist at New Century Advisors and former forecaster at the Federal Reserve.

Talmon Joseph Smith

Times economics reporter based in New York.

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What they’re saying

“It basically shows that inflation firmed up to start the year. All the key measures are moving in the wrong direction.”

— Omair Sharif, Founder, Inflation Insights (dnyuz.com)

“Things aren't collapsing. But I do think consumer spending has been a source of resilience, and things are not as strong as they've been in recent years.”

— Claudia Sahm, Chief Economist, New Century Advisors (dnyuz.com)

“We can learn something from history. I can come up with scenarios for the Fed going forward in which it'd be appropriate for them to pause, cut or hike rates. They'll need to be ready to act when it's clear.”

— Claudia Sahm, Chief Economist, New Century Advisors (dnyuz.com)

The takeaway

The new economic data and the emerging conflict with Iran have created a challenging environment for the Federal Reserve, which must balance its goals of price stability and maximum employment. The central bank will need to be nimble and prepared to adjust monetary policy as the situation evolves, drawing on lessons from past periods of economic and geopolitical uncertainty.