Name: Will U.S. Strikes On Iran Trigger Stagflation Risk?
Uploaded: 2026-03-17T15:08:53.000Z
Duration: 4 min 41 s
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Today will be yet again our most intense day of strikes inside Iran.

Modal verbs - B1

This was an excursion that a lot of people wouldn't have done.

The second conditional

I knew oil prices would go up if I did this, and

they've gone up probably less than I thought they'd go up.

The war in Iran has been a kind of classic oil shock.

We had this big, surprising US Attack that all of a sudden sent up the price of oil dramatically.

Everybody was worried all of a sudden there wouldn't be any more oil.

Since then, you've had individual attacks by the Iranians and by the US on infrastructure in the region that has hurt the ability to produce energy.

In the long run, that raises the price level of just about everything in the economy.

I cover the intersection of politics, policy and economics in the financial markets.

So far, we haven't really seen official numbers that show us clearly what the Iran strikes are doing to the economy.

The Atlanta Fed's GDP now tracker fell pretty dramatically, and that worried a lot of people.

That's a reaction to some other bad news in the economy, including a bad jobs report that showed about 90,000 jobs were lost in the US in February.

In all of last year, the US economy only created about 110,000 jobs.

And if you start having big shocks like an oil sh added on top of that, you could see employers starting to get worried about whether or not they can afford all of these employees, and

they might start considering things like layoffs.

An oil shock is a tough one because it manages to hit you on both sides.

If you're a trucker, you got to pay more for gas, more for diesel.

Diesel price in particular has gone up pretty substantially.

So this oil shock is going to remind people a lot of the 1970s when we had the word stagflation running around a lot.

That's the thing the US economy hasn't had really in 50 years.

It's when growth is slow and inflation is high.

So inflation has been high for a while, but growth has been pretty good.

This economy is moving the fastest we've ever seen and with, say, 4% growth this year, which is about what I expect that we're going to see, then there'll be so much activity that everybody's going to be able to find a job that wants one.

So if you think about kind of what normal growth and inflation would be, you might want sort of 2% growth.

That's what the Federal Reserve Targets on the inflation side, if you go above 2% inflation and you go below 2% in growth, that starts to sound like a stagflation.

But there's no real official definition of the term.

Bond markets reacted pretty quickly to the war in Iran by saying they're worried about inflation coming back.

We saw the 10 year treasury yield start to tick up a little bit.

And some measures that investors look at, like Breakevens suggested that in the near term investors are really worried about inflation coming back.

So far, it's in the near term and the long term picture looks pretty good.

But if the war continues to add damage to the US and global economies, that could change.

There is not a lot the US Government or other governments can do to try to get oil flowing again and to make people comfortable that oil is going to continue to flow.

As of right now, it's very hard for ships to get through the Strait of Hormuz, which carries about 20% of all the oil in the world.

If captains of oil tankers feel like it's safe to transit the Strait of Hormuz and go by Iran, they're just not going to.

And there's not a lot the policymakers can do about that.

The US Navy and its partners will escort tankers through the strait if needed.

The reality is that nobody who's trading energy right now really knows what's going to happen.

And that means there's a strong possibility that oil prices could go up substantially.

The US Economy can sustain higher oil prices for a little while, but

if they stay up for a few months, let's say, then that will start to show up in inflation numbers and you'll see them grow by, you know, a few tenths of a percent.

The Fed is going to be in a really tough spot if inflation picks back up, because what they have to do is balance the jobs market, which is weakening with the inflation picture, which seems like it could be getting worse.

A lot of economists think that if we can get through this oil shock without prices staying well above $100 a barrel, we probably won't have stagflation, at least for right now.

There's reason to hope that we might avoid that outcome.