The war with Iran may be nearing its end. Its toll on the U.S. economy has yet to subside.
A preliminary deal touted by President Trump on Monday appeared to pause the fighting in the Middle East — but not the high prices and other disruptions that have hammered American families and businesses recently.
At the onset of the war, Mr. Trump predicted that his intervention would be over in short order, resulting only in a mild disruption to the U.S. economy, which he promised would rebound quickly. But the campaign eclipsed three months, and it unleashed a set of financial stresses on the country that are expected to persist, perhaps into next year.
Oil prices have started to recede, but fuel costs generally will not fall to prewar levels immediately, and it may be months before consumers see full relief at the gas pump. By Monday, the average cost of gasoline topped $4 per gallon nationally, according to AAA, lower than its mid-war peak but still about $1 more a gallon than a year ago.
Other snarls in global energy and shipping also appear to be easing, as the Strait of Hormuz, a critical waterway connecting the Persian Gulf and the Gulf of Oman, begins to reopen. But the shipping backlog is not going to dissipate overnight, and goods like fertilizer may continue to be in short supply. Analysts say that could further push up the cost of food for some time after the conflict ends.
After three months of war, inflation overall accelerated in May. reaching its fastest pace in three years as price increases outpaced wage gains. The turbulence offered a stark contrast with Mr. Trump’s repeated assurances that the economy was fine and the repercussions of the war would be temporary. At one point last month, he promised that Americans would “see gasoline and oil drop like a rock” just as soon as the two countries reached a deal.
But the extent to which the White House can deliver on that pledge represents one of its biggest economic challenges and greatest political threats, as an increasingly dissatisfied electorate prepares to head to the polls for the midterm elections.
James Knightley, the chief international economist for ING, acknowledged on Monday that many uncertainties still surrounded the deal between the United States and Iran to end the war. Chief among them, he said, is the extent to which it will be a “durable peace.”
The terms of the arrangement have not yet been made public, and it is not clear whether a truce between the United States and Iran can hold. Nevertheless, Mr. Knightley explained, it could be some time before economic conditions improve fully.
He predicted that even though oil prices had come down, it might not be until 2027 before an average gallon of gas returned to its prewar levels, under $3 per gallon nationally, and for inflation to slow down to the 2 percent target set by the Federal Reserve. In both cases, the “real help” may not arrive until after the midterms, according to Mr. Knightley, who said the timeline could prove to be a “hindrance to the Republican Party” politically.
In a statement, Kush Desai, a White House spokesman, stressed that the Trump administration had taken steps to “lower costs and accelerate growth,” even amid the war. He pointed to some of the president’s policies, including its work on drug prices.
“President Trump has consistently maintained that oil and gas prices — and thus overall inflation — will plummet once the Iran situation is resolved,” he said.
As soon as he ordered the first strikes in late February, Mr. Trump framed the war with Iran as a matter of necessity, claiming that it was the only way to stop the country from developing and using a nuclear weapon. At various points in the ensuing conflict, he dismissed or downplayed the economic consequences of his intervention, or mused aloud that he had expected the fallout to be far worse.
Even as gas prices rose, the president doubled down in describing the concerns around affordability as a “con job.” And after receiving the latest inflation report last week, Mr. Trump described the number as “great” and declared: “I love the inflation.”
Many Democrats quickly seized on those remarks. They saw in the president’s rhetoric — and in his handling of the war to date — a fresh opportunity to make the case to voters that Republican control of Washington had left families worse off financially.
“What is Trump thinking? Did Trump lose a bet where he had to say the most asinine, tone-deaf thing imaginable on national television?” Senator Chuck Schumer, the New York Democrat and minority leader, said during a speech on the chamber floor last week.
The attacks seemed designed to take advantage of a steady stream of recent polling showing that majorities of voters are increasingly frustrated with Mr. Trump’s handling of the economy. Measures of consumer confidence have echoed some of that negativity and anxiety about the country’s future.
“The president made a decision to wage a war with Iran that the American people do not or did not want, and so I don’t think they’ll get any sympathy at the ballot box,” said Elizabeth Pancotti, the managing director for policy and advocacy at Groundwork Collaborative, a left-leaning political advocacy group.
The White House frequently has dismissed some of the poor marks as partisan, while maintaining that consumers are continuing to spend money, and suggesting they actually feel better about their finances that it appears.
Tomas J. Philipson, a professor at the University of Chicago who served on the White House Council of Economic Advisers during Mr. Trump’s first term, described some of the pessimism as routine, because it is often directed at whichever “party is in power.” Otherwise, he said, the economy has many bright spots, as he predicted that a deal with Iran would be an “enormous relief for the markets and the economy in general.”
Mr. Trump had been hoping to sell voters this November on an economic boom in full swing, pointing to his policies — including a sprawling set of tax cuts — as they started taking effect. The labor market, in particular, offered a recent source of strength, after employers added 172,000 jobs last month. And the president saw a reflection of those gains in financial markets, which soared on Monday on the prospect of an Iran deal.
Taken together, the White House believed that those conditions had set the stage for an economy that would experience a “disinflationary boom,” said Joseph Lavorgna, the chief economist at SMBC Nikko Securities America, who until recently served as a top adviser at the Treasury Department. He said the growth would help push down prices that remained high.
But that was before the war with Iran, which caused prices to rise and threatened to slow down growth in the nation’s economic output. As a result, Mr. Lavorgna said, the lingering effects of high oil prices and continued supply chain disruptions have changed the landscape through the remainder of the year.
“We’re going to have a boom,” he said, “but it’s not going to be a disinflationary one.”
While gas prices could soon fall, most economists believe that they are likely to remain above the prewar average until “at least the end of this year,” said Ajay Parmar, director of energy and refining at the Independent Commodity Intelligence Services, or ICIS, which provides market data to the industry.
He predicted that if oil prices also remained elevated for longer than expected, driven in part by surging demand at the end of the war, “inflationary pressure will remain in the U.S. for a reasonable period of time.”
Nor would energy serve as the sole force pushing up prices. A pair of reports from the firm Oxford Economics released over the past week pointed to other potential risks, including cost increases in fertilizer, which could cause food prices to rise as a result. The firm predicted that this could occur globally on a lag “even after the war ends.”
“Even if oil prices come down pretty sharply after a deal is reached, it doesn’t necessarily mean inflation is going to come down as sharply,” said Grace Zwemmer, the U.S. economist at the firm Oxford Economics.
“Things won’t go back to status quo just like that,” she said. “But a deal obviously would take some of the downside risks to the economy away.”
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