How has the Iran war affected the US economy?

Added: 2026-05-22

[00:00:00]Before his return to office, Donald Trump was very confident he would [music] make the US >> the greatest economy in history.

[00:00:07]>> But a year and a half after his re-election, the president's policies are hurting the US [music] economy. A brutal trade and tariffs war with the rest of the world. Tariffs, my favorite word, tariffs. A feud with outgoing [music] Federal Reserve Chair Jerome Powell on rate cuts. He's a terrible Fed chair. I was surprised he was appointed.

[00:00:28]>> And most recently, a joint war with Israel against Iran.

[00:00:32]>> We are going to destroy their missiles and raise their missile industry to the ground. It will be totally, again, obliterated. So, how is the US economy looking today? The effects of Donald Trump's policies have now started [music] spilling into American people's daily lives.

[00:00:50]>> So, I think between tariffs and the Iran war, whether it's the direct costs that are being incurred in terms of elevated input prices or the indirect costs of policy uncertainty, we know that in the short run, um consumers are facing higher costs. They're facing an affordability crisis. In the longer run, this is damaging to US economic growth and again to um >> [music] >> prudent policy making in the long run.

[00:01:13]As of mid-May, gas prices in the US surpassed $4.5 [music] per gallon, up from $2.98 per gallon on 27 February 2026, one day [music] before the start of the Iran war. But it's not only at the pump.

[00:01:29]Higher gas prices are spilling into other sectors of the US economy. A new report shows that US inflation jumped to 3.8% [music] in April. This means that day-to-day living expenses are increasing. The cost of buying food at the grocery store, for example, was up 2.9%.

[00:01:46]President Trump insists [music] that prices will drop after the Iran war ends.

[00:01:51]>> The gas will go down as soon as the war is over, it'll drop like a rock.

[00:01:55]>> Now, when this war ends, the gasoline and oil and everything is going to come tumbling down. Our inflation is just short-term. But, a peace deal doesn't seem forthcoming, and experts are warning that a return to normal could take a while, even if a deal is reached and the Strait of Hormuz is reopened. Pre-war, the the US economic landscape was highly uncertain.

[00:02:17]The war has only increased that uncertainty. Because of this uncertainty, we know that businesses are going to pull back on investment, pull back on hiring. This is bad for growth.

[00:02:24]This is bad for uh US consumers. And this is also bad for the Fed, again, who is reliant on stable fiscal policy making that they can then respond to with prudent and sort of stable monetary policy making. Before the war with Iran, the fallout from President Trump's [music] tariffs was already being felt in the form of higher consumer prices.

[00:02:43]The supply shock triggered by the closure of the Strait of Hormuz and the uncertainty surrounding the resolution of the war has only compounded these inflationary pressures. [music] On Friday, Donald Trump will be swearing in Kevin Warsh, who he handpicked [music] to be the new chairman of the Federal Reserve. The expectation is that Warsh could yield to the Trump administration's pressure on the Fed [music] to keep cutting interest rates, which could drive further inflation.

[00:03:10]>> If the White House is able to exert political influence on the Fed through Warsh or through other nominees to keep rates low or even lower than below their current level um despite economic evidence, markets could become distrustful of the Fed's commitment to its mandate to contain inflation, and this could have long-run implications for US economic growth and inflation as inflation expectations become unmoored. The Iran war has cost US taxpayers nearly $29 billion.

[00:03:37]The Pentagon has asked for nearly $1.45 trillion for defense spending in [music] the coming fiscal year's budget. That's 40% more than what the US spent [music] on defense this fiscal year. But, the only thing on Trump's mind is Iran's nuclear program.

[00:03:55]>> I don't think about American financial situation. I don't think about anybody. I think about one thing. We cannot let Iran have a nuclear weapon. That's all. Trump's popularity at home has taken a hit. A recent poll by Reuters and Ipsos [music] found that nearly eight in 10 Americans hold him responsible for higher gas prices.

[00:04:15]Another poll by the Financial Times found that around 58% of voters disapprove of the president's [music] handling of inflation and the cost of living. On Monday, Trump said he called off a planned attack on Iran earlier this week [music] after warnings from Gulf nations. Then two days later, on Wednesday, he said negotiations with Iran were reaching their final stage.

[00:04:37]With midterm elections looming in November, is more uncertainty the right strategy?