Post #3605 by tjscott0 on the Macroeconomic Trends and Risks board

Personal Finance Topics / Macroeconomic Trends and Risks

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https://www.nytimes.com/2026/03/05/business/econom...

How War in the Persian Gulf Could Spill Into the U.S. Economy Rising energy prices, snarled supply chains and higher government debt could all hurt American consumers. By Lydia DePillis, The New York Times, March 5, 2026 Three kinds of events have historically pushed the United States into recessions: financial crises, oil price shocks and pandemics. The U.S. and Israeli attacks on Iran have already brought about the second circumstance on that list and, if things go badly, potentially the first… In the days after the war began, tankers stopped entering the Strait of Hormuz, which Iran controls and through which 20 percent of the world’s oil is channeled. About 200 ships are stranded in the Persian Gulf region, according to Lloyd’s List, and oil shipping rates have shot up. Saudi Arabia’s largest oil refinery and Qatar’s largest liquefied natural gas export facility shut down after drone attacks. Oil prices surged and are up about 15 percent since the fighting started, at about $83 a barrel for the international crude benchmark… Inflation is expected to rise, decreasing the likelihood that the Federal Reserve will cut interest rates in the coming months… Uncertainty about whether the war will widen and disruptions linger comes as U.S. consumer goods companies are buying raw materials, with an eye toward the Christmas shopping season… Investors sold off U.S. Treasury bonds after the attacks began, rather than flocking to them as they typically do in times of global instability… If investors lose confidence in a handful of technology companies’ ability to deliver on their promises, stock markets that have become heavily concentrated in their stocks could take a hit…[end quote]

The bond market is larger than the stock market. As a bond buyer, I look at the maturity of the bond and try to predict inflation and the general level of bond yields years in advance. Federal debt as a share of gross domestic product is already at historic highs and predicted to get much higher. Even TIPS that are protected from inflation will drop in value if interest rates rise later.

Treasury yields are rising because investors are afraid that the Iran attack will turn into yet another expensive quagmire. This will increase the federal deficit even further.

https://stockcharts.com/freecharts/candleglance.ht...

https://stockcharts.com/freecharts/yieldcurve.php

https://fred.stlouisfed.org/series/DFII30

Wendy

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“Inflation is expected to rise, decreasing the likelihood that the Federal Reserve will cut interest rates in the coming months…”

If inflation is rising due to higher oil prices, not due to an overheated economy, then cutting rates could be the right move, perhaps?

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Will this matter until it begins to impact the billionaire broligarchy?

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AdrianC wrote, "If inflation is rising due to higher oil prices, not due to an overheated economy, then cutting rates could be the right move, perhaps?"

Higher oil prices might lead to stagflation as happened in the 1970s. Then the Fed is caught between a rock and a hard place. The experience in the 1970s was that lower interest rates led to higher inflation...until Fed Chair Volcker came in and dramatically raised the fed funds rate.

Every Fed governor knows this. They know their names will be studied in economics classes for decades to come.

Wendy

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https://mishtalk.com/economics/four-mideast-oil-pr...
Saudi Arabia, UAE, Kuwait, and Qatar discuss canceling US investment commitments.
Financial Times (paywall): Gulf states could review overseas investments to ease financial strains caused by Iran war

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https://mishtalk.com/economics/gasoline-prices-jum...
The national average for a gallon of regular gasoline jumped nearly 27 cents since last week to $3.25.

Ha! I wish that was true in my neck of the woods. $2.65 to $3.19.

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