Last week military actions occurred in the Middle East. U.S. and allied carried out strikes in Iran. This ended up triggering reactions to interest rates and prices. Oil prices shot up and global stocks fell immediately. Economist say these actions won't affect the Federal reserve's upcoming interest rate decisions. Iran's supreme leader was killed in these attacks leading to a chain of events that affect more than just Iran. There has been a large backup of traffic in Iran, it is expected to lead to higher prices in gas for American consumers. It is said to been too early to really know what is going on. There shouldn't be a panic for gas but there not sure yet. Donald Trump said that this last for about 4-5 weeks.
If the war does end up lasting a period of time American consumers may see skyrocketing energy costs that could push the U.S. economy towards stagflation. Stagflation occurs when inflation is high, slow or negative economic growth, and rising unemployment. This combination is very dangerous for the economy because the policy tools for inflation can worsen unemployment, and policies to reduce unemployment. The U.S. remains strong right now but there are warning signs that are occurring. Oil prices are rising; inflation is higher than the target. Higher gas prices could raise the cost of materials; this would lead to companies having to cut down on materials leading to missing out on more customers. These attacks have multiple impacts that go past military and physical attacks. It effects the economy in so many ways that are often looked past. All of these events have chain reactions that can affect everything.
How does war with Iran affect prices, interest rates, supply chains?
If war activity continues in the Middle East could this slow down economic growth within the U.S. even if domestically things are holding strong?
ReplyDeleteI really liked how you talked about the potential for stagflation In the U.S. economy. What I think makes this situation difficult is if inflation does rise due to oil prices, the FED doesn't have many tools to fix the issue. Raising interest rates could slow the economy even further, but not doing anything could allow inflation to persist.
ReplyDeleteIt's definitely true that each variable can have effects on the others. I think one factor that is being overlooked is Israel's involvement in the war as well as us. I think this will be over fast, especially with their support, and we'll have to see what happens to the economy as the outcome of this war becomes clear
ReplyDeleteIm always curious to see how different altercations in the political and national space have a subsequent effect on the economies of the warring nations.
ReplyDeleteYou did a nice job highlighting the chain reaction that global conflicts can have on the economy, especially how energy prices can affect production costs, consumer prices, and economic growth. The discussion about stagflation was particularly interesting because it shows why policymakers face difficult tradeoffs in these situations.
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