US Economy Suffers from Iran War-Driven Inflation and Rising Borrowing Costs

The US economy has undergone significant changes since the start of the Iran war in February. Before the conflict, gas prices were just under $3 a gallon, but today they're averaging around $4.50. Diesel prices have also skyrocketed, from an average of $3.75 on Feb. 28 to over $6.50 on Tuesday.

This surge in energy costs has contributed to higher inflation, with the consumer price index (CPI) rising by 1 percentage point to 3.4% since the war began. The Federal Reserve recently raised interest rates for the first time since 2023 in an effort to combat this growing inflation.

The war's impact on the economy has been felt across various sectors, including bonds and mortgages. The yield on the 10-year Treasury note has climbed from 3.96% to nearly 5%, while mortgage rates have risen to over 7%. This increase in borrowing costs means that taxpayers will have to allocate more dollars towards paying interest, leaving less for other investments.

Consumer sentiment has also taken a hit, with the University of Michigan's consumer sentiment survey sitting near all-time lows. The Conference Board economics consultancy has reported two straight months of declining consumer confidence.