It has been four months since the war with Iran began, and the American economy has not yet collapsed under the pressure of the conflict. But that does not make things any calmer.
Jan Hatzius from Goldman Sachs says the global economy is still holding up. So far, serious shocks have been avoided, although the risks in the market have certainly not decreased.
At the same time, many are asking: if everyone is talking about risks and problems in the economy, why hasn’t the market started to fall seriously yet? Even amid the war, American indexes continue to hold very confidently.
Hatzius believes there are several reasons for this.
The first is oil. Many countries managed to build up reserves in advance before the conflict began, so prices did not rise as sharply as the markets feared. Certain problems still appeared. For example, there was a shortage of jet fuel. But a serious crisis has so far been avoided because airlines started cutting less important flights.
The second reason is the hype around AI. Huge investments in the AI sector continue to support investor optimism. This is exactly what helps the S&P 500 and Nasdaq indexes stay near historic highs even amid war and rising inflation.
The third factor is that the labor market has not yet started to weaken sharply. Unemployment remains relatively stable, and companies are still hiring employees, albeit much more cautiously than before.
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At Goldman Sachs, they do not believe the danger is already behind us. The bank slightly lowered the probability of a recession this year from 30% to 25%. But even now, this figure is still higher than it was before the conflict began.
Economists are increasingly saying that Americans will soon start spending less. Many are already running out of money received after tax refunds, and meanwhile, gas continues to get more expensive. If the war drags on, everyday expenses for families will become even heavier. At the same time, wages are no longer growing as fast as before.
Hatzius also believes that the AI hype alone is not enough for the market to continue calmly ignoring problems. The pressure from inflation has not gone anywhere. Prices continue to rise, and companies are becoming more cautious about hiring employees.
The War With Iran Is Driving Up Inflation in the US
The consequences of the conflict are already being felt in everyday life. On Monday, the average price of a gallon of gasoline in the US rose to $4.52. A year ago, it was $3.14.
In April alone, prices rose by another 0.9%, and annual inflation accelerated to 3.3%. This is the highest figure since April last year. Americans have to spend more and more money on gasoline and utilities, so there is less left for other purchases.
The April jobs report somewhat reassured investors. In one month, the US added 115,000 new jobs, and unemployment remained at 4.3%.
However, economists urge not to celebrate too soon.
Chief RSM economist Joe Brusuelas described the current situation as low hiring and low layoffs. According to him, the labor market still looks stable only on the surface, but there is practically no growth there.
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Homebase economist Guy Berger stated that this report rather shows what the situation could be under different circumstances. Berger himself says he is now less concerned about fresh statistics and more about what will happen next with the economy.
There is another reason why unemployment does not yet look too high. After tightening migration policy and deportations, the labor market shrank by about 600,000 people. Formally, this helps keep the numbers up, but in reality, the situation is not getting any better.
Economist and co-founder of Optimist Economy Catherine Ann Edwards believes the labor market is currently in a rather fragile state.
According to her, if the pressure on the economy continues to increase, the situation could quickly worsen. Many companies are now trying not to rush into business expansion, new investments, and hiring employees.
Business is waiting for at least some certainty. And the protracted conflict with Iran only increases this caution.
Trump Is Losing Ground Amid Economic Problems
For Trump all this is also starting to become a problem. The economic situation is beginning to hit Trump’s ratings. More and more Americans are dissatisfied with how the authorities are handling rising prices.
According to a YouGov poll conducted from May 1 to 4, only 38% of registered voters approve of Trump’s economic policy. At the same time, the majority of respondents believe the administration is responding poorly to rising prices for goods and fuel.
For Democrats, this is a good chance before the election. To regain control of the House of Representatives, they need to win just eight competitive districts out of 18. If the economic situation worsens, the task will become noticeably easier.
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Trump is already trying to somehow ease the tension around the situation. Among his ideas are temporarily removing the federal gas tax and simplifying beef imports.
But on Monday, he himself added fuel to the fire again. Trump said that the ceasefire with Iran is now literally on life support. The markets reacted almost immediately. Investors began to exit risky assets, and oil went up again.
So far, the economy is still coping with the consequences of the war. But the longer the conflict continues, the higher the risk that problems will start to accumulate much faster.
