Iran war impact on economy goes beyond stocks, experts say
This digest was compiled by AI from multiple sources — links to the originals are below.
The US-Israel war on Iran is escalating, but experts say the real clues to the state of the economy lie beyond stock indices and oil prices. Yields on 10-year US Treasury bills have risen nearly 60 basis points since late February to 4.6 percent, the highest in a year, making borrowing more expensive. Consumer prices fell 0.4 percent in June as oil prices dropped, but Brent crude rebounded to $91.42 a barrel on Sunday as a ceasefire agreement appeared to collapse.
Bond Market Signals
Yields on 10-year US Treasury bills have risen nearly 60 basis points since the war on Iran began in late February, reaching 4.6 percent on Monday, according to Tufts professor Michael Klein. This is the highest level in the past year, reflecting investor expectations of rising inflation. Higher yields make it more expensive for businesses to borrow, slowing economic activity.
Oil Price Volatility
The Strait of Hormuz, through which 20 percent of the world's oil flowed before the war, remains largely closed despite a brief respite after a US-Iran ceasefire memorandum of understanding (MoU). Brent crude reached $91.42 a barrel on Sunday before falling to $88.04 on Monday, while US gasoline prices rose to $4 per gallon from $3.87 a week ago. The brief reopening in June led to a 9.7 percent drop in oil prices, contributing to a 0.4 percent decline in consumer prices.
Rate Hike Expectations
Traders now see a 55 percent chance of a quarter-percentage point interest rate hike in the US in September, according to the CME Group's FedWatch tool. Rachel Ziemba of the Center for a New American Security noted a shift from "overoptimism" about oil flows to a "correction" as the MoU fell apart. Markets are forward-looking and discounting President Trump's inconsistent statements on the war, Klein added.
What's Next
The US Federal Reserve is set to meet in September, with traders pricing in a 55 percent chance of a rate hike. It remains unclear whether the ceasefire MoU can be revived or if oil prices will continue to rise, further straining the global economy.
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Iran war impact on economy goes beyond stocks, experts say
