US Economy Stumbles as Iran War Drags On

The US economy is facing significant challenges, with growth rates nowhere near the optimistic predictions made by President Trump. According to the Bureau of Economic Analysis (BEA), real GDP increased at a 1.5% rate in the second quarter of 2026, down from 2.1% in the first quarter.

The Federal Reserve is concerned about rising inflation, which was 3.4% in the second quarter and aims for an inflation rate of 2%. The war with Iran has led to a major increase in diesel prices, affecting industries that rely on it, such as trucking, farming, and industry. Labour shortages resulting from Trump's attacks on migrants and the AI investment boom are also contributing to inflation.

The US debt is rising due to tax cuts under George W. Bush and Trump, benefiting the super rich. Without these cuts, federal debt would amount to only about 60% of GDP this year, not the 100% estimated by budget hawks. The cost of servicing US debt has increased from an average of 1.57% in 2016 to 2.59% today.

The Iran war is also affecting global markets, with Japan spending $96.5 billion to support the falling yen and prevent a destabilization of global markets. If Japan sells its US Treasury bonds, it would push Treasury yields higher and increase borrowing costs for the US. The war has been devastating for US bases in the region and has long-term consequences.