US Economy Braces for Uncertainty Amid Iran Tensions and Inflation

The US economy has been resilient despite facing several challenges, including elevated inflation and a global energy shock. However, with a return to fighting in Iran and potential rate increases from the Federal Reserve later this year, the outlook is becoming increasingly uncertain.

Economic growth slowed down to 1.5% pace in the second quarter of 2026, from 2.1% in the first three months of the year. Consumer spending, which accounts for 70% of US economic activity, increased at a 3.2% pace in the second quarter.

AI-fueled business spending was also strong, increasing by 8.4%. Despite this resilience, budgets are facing mounting strains due to five years of elevated inflation and a recent slowdown in real wages.