Trump's War on Iran Sparks Economic Storm for Consumers and the Fed

Inflation holds steady, but rising energy prices and geopolitical turmoil threaten to undo progress.

Mar. 11, 2026 at 8:58pm

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Inflation held steady in February, but a sudden surge in oil prices tied to the war in Iran threatens to push inflation higher in the coming months, complicating the Federal Reserve's policy decisions. The labor market is also weakening, and consumer spending may slow due to smaller-than-expected fiscal tailwinds from tax refunds. The Fed now faces a challenging situation of higher prices paired with slowing growth, known as 'stagflation', as it also navigates uncertainty around tariffs.

Why it matters

The economic fallout from the conflict with Iran poses significant risks for American consumers and the Federal Reserve. Higher energy prices could drive up inflation, while a weakening labor market and slower consumer spending could lead to stagflation - a dangerous combination of high inflation and slow growth. This puts the Fed in a difficult position as it tries to balance its dual mandate of price stability and maximum employment.

The details

Consumer prices rose 2.4% in February from a year earlier, suggesting inflation has been gradually cooling. However, the sudden surge in oil prices due to the war in Iran threatens to undo that progress. The national average price for gasoline reached $3.58 a gallon on Wednesday, up $0.64 over the past month, and U.S. crude oil prices remain volatile after surging earlier in the week. The spike is due to an effective shutdown of the Strait of Hormuz, a key oil transit chokepoint. Meanwhile, the U.S. economy lost 92,000 jobs in February, and revisions showed 69,000 fewer jobs in December and January than originally estimated. Economists are also concerned that consumer spending may slow due to smaller-than-expected fiscal tailwinds from tax refunds.

  • On Wednesday, the national average price for gasoline reached $3.58 a gallon, the highest level since May 2024.
  • On Wednesday, the 32 countries that comprise the International Energy Agency unanimously agreed to release 400 million barrels of oil from their reserves.

The players

Joe Brusuelas

Chief economist at RSM.

Rick Rieder

Chief investment officer of global fixed income at BlackRock.

Skyler Weinand

Chief investment officer at Dallas-based investment advisory firm Regan Capital.

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What they’re saying

“Due to the events in the Persian Gulf policymakers and the public can effectively ignore the February U.S. Consumer Price Index.”

— Joe Brusuelas, Chief economist (RSM)

“This labor market weakness comes alongside a movement toward greater labor-minimizing and cost-reducing productivity enhancements from many technological advances, but we still have yet to see the real impact of AI-related substitution in the labor market.”

— Rick Rieder, Chief investment officer of global fixed income (BlackRock)

“Until the Strait of Hormuz is opened and the turmoil in the Middle East simmers down, the Federal Reserve may step away from any action on interest rates.”

— Skyler Weinand, Chief investment officer (Regan Capital)

What’s next

The Federal Reserve will closely monitor the impact of rising energy prices and the weakening labor market as it considers its next policy moves. Policymakers will also need to assess the potential effects of tariff refunds and the ongoing geopolitical tensions in the Middle East.

The takeaway

The economic fallout from the conflict with Iran has created a complex and challenging situation for the Federal Reserve, as it must balance concerns about rising inflation, a weakening labor market, and slowing consumer spending. This 'stagflation' scenario could make it difficult for the central bank to cut interest rates and provide relief to American consumers.