A US economy It needs the fragile ceasefire negotiated by President Donald Trump in the Middle East to keep up.
And the main hostilities are resumed, oil prices would probably shoot again. And the increase in gasoline prices is the last thing the American economy needs now.
Inflation is already expected to increase this summer due to Trump’s huge imports of imports. A shock of oil would make things worse – perhaps much worse.
“It would be a double blow. First, there is the stagflactionary shock of tariffs. And then a potential shock of oil,” said Alan Blinder, professor of economics at Princeton University and former federal reserve employee, in a telephone interview with CNN.
In many ways, Trump’s trade war gives him less margin for the Middle East error. He cannot afford to luxury another world event that makes inflation show his ugly face again and further delay the cuts in Fed rates.
“The economy is vulnerable to anything that can go wrong, and this certainly qualifies,” said Mark Zandi, chief economist at Moody “S Analytics.
This is why investors are breathing relieved in recent days. The shares rose and oil prices plummeted into one of the biggest falls in years.
Iran’s response to US attacks on nuclear facilities was much more limited and symbolic than it was feared. In addition, the ceasefire between Israel and Iran relieves fears that vital energy infrastructures in the region are hit in cross fire.
.
Analysts warned that if this navigable road was closed, oil prices could easily exceed $ 100 or $ 120 per barrel, causing the return of gasoline to $ 4 to $ 4.50 in the US.
Until Sunday (22), the chances of Iran closing the Hormuz Strait had risen to about 60% on the Polymarket forecast platform.
But on Tuesday (24), the chances plummeted to just 17% as investors bet that the worst in the Israel-strain crisis could have passed.
Observers noted that closing the Strait of Ormuz would be counterproductive to Iran, which depends on the navigable road to bring their own oil to customers, especially in China.
“They would be shot in their own foot,” said Blinder, “but countries have been known to do that.”
However, inflation has cooled in recent months, even with Trump imposing tariffs on cars, steel, aluminum and imports from most countries.
Still, many economists say this is the calm before the storm, with rates driven by tariffs on the way. Some items exposed to rates, such as appliances, toys and electronics, have become more expensive.
“In many ways, the last months can be a low transient inflation before the effect of rates on prices reach,” said Bob Elliott, CEO of the Unlimited Alternative Investment Company, in a telephone interview with CNN.
“No serious economist would look at inflationary trends and predict that they will continue in the future.”
Unless tariffs are drastically reduced, Elliott said inflation will probably increase from 1% to 1.5% of current levels.
In a testimony to Congress on Tuesday, Fed President Jerome Powell reiterated the posture to wait to see from the Central Bank, saying to the legislators: “I wouldn’t like to point to a specific meeting. I don’t think we need to be in a hurry because the economy is still strong.”
If the situation in the Middle East gets worse again, it would create a potential increase in energy prices.
“It would be a complicated combination,” said Elliott, former executive of Hedge Bridgewater’s giant background.
Oil shocks can be very inflationary because energy prices feed many parts of the American economy.
In addition, there may be a psychological effect, given how much Americans follow gasoline prices.
And it’s just three years since gasoline prices exceeded $ 5 per gallon for the first time after the Ukraine invasion of Russia. Inflation fired for maximum four decades and the Fed was forced to put out the fire by dramatically increasing loan costs.
“People look at prices on bombs as a decisive test for inflation in general,” said Zandi, Moody economist “S.
For now, gasoline prices seem to have stabilized. The national average price of regular gasoline remained stable at $ 3.22 per gallon on Tuesday, according to AAA. This represents an increase over the $ 3.13 per gallon when Israel attacked Iran earlier this month. However, it is still lower than the $ 3.45 per gallon of a year ago.
In a speech on Tuesday, Cleveland’s Fed President Beth Hammack noted that oil prices “deserve attention” recent price movements due to geopolitical events.
“The pain of large increases in energy prices still weighs on consumer spending,” Hammack said, noting that the US is less exposed to oil shocks than in the past. “Recent increases in oil prices pose an upward risk to the stability of inflation expectations.”
For now, investors hope that the ceasefire in the Middle East means that there will be no repetition today.
