Moody’s Analytics Chief Economist Mark Zandi warned that the Iran war is fueling inflation and pushing long-term borrowing costs higher, prompting investors to shift from expecting Federal Reserve rate cuts to anticipating possible hikes.
Iran War Pushes Treasury Yields Higher
On Sunday, Zandi said in a post on X that long-term interest rates had climbed to levels not seen since before the Global Financial Crisis.
“Long-term interest rates are on the rise, and about as high as they’ve been since prior to the Global Financial Crisis,” the Economist said.
“At the top of the list of reasons why is the Iran War,” he said, noting that the 10-year Treasury yield was below 4% before the war but had risen to nearly 4.75% as of last Friday.
“The war has fueled inflation, causing investors to shift from expecting the Fed to cut rates this year to expecting it to raise them,” Zandi said.
“But barring that vexed move, oil needs to flow through the Strait of Hormuz, the Fed needs to give investors some sense of what it is thinking as it sets policy, and lawmakers need to address the nation’s darkening fiscal outlook.”
Iran War Raised Inflation Risks
Earlier, Kevin Hassett said fuel and grocery prices remained elevated because of the Iran war, though fuel costs could decline after the Gulf situation was resolved.
He described the U.S. economy as being in a “liftoff stage,” citing strong investment, low job losses and rising productivity.
Economists warned that the war’s inflationary effects could persist after the conflict ended.
Higher fuel prices and disruptions around the Strait of Hormuz pushed up energy and fertilizer costs, while Zandi estimated the war had added $21.3 billion to U.S. gasoline costs over six weeks.
Treasury Secretary Scott Bessent said economic growth could slow depending on the war’s duration. The IMF raised its 2026 U.S. inflation forecast to 3.2% from 2.5%, while the OECD lifted its forecast to 4.2% from 2.8%.
Iran War Fueled March Inflation
U.S. inflation rose 0.9% in March, pushing annual CPI inflation to 3.3% from 2.4% in February, largely due to the Iran war’s impact on energy prices.
Energy costs jumped 10.9%, with gasoline surging 21.2%. Core inflation rose just 0.2% monthly, suggesting the inflation shock remained concentrated in energy.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
