The current U.S. economic expansion began in May 2020 and is now a little over five years old. While that’s shorter than the long stretch from 2009 to 2020, the bigger story is what comes next. Today’s economy is being pulled in two different directions. Rising oil prices, driven by the conflict involving Iran, are pushing inflation higher, while new money flowing to households is supporting spending. Together, these forces are creating uncertainty for both the economy and financial markets.
Oil prices have moved higher in recent weeks as tensions in the Middle East have increased. Even small disruptions, especially around key shipping routes like the Strait of Hormuz, can quickly affect global energy markets. We are seeing that play out again.
Higher oil prices affect more than just the cost of gasoline. While prices at the pump are the most visible impact, the effects spread more broadly. Transportation costs rise, increasing the price of food, travel, and everyday goods. In short, higher energy costs tend to push prices up across the economy.
This creates a difficult situation for policymakers. Inflation had been easing, but rising energy costs could reverse that trend. At the same time, higher prices can slow economic growth. Unlike strong consumer demand, which the Federal Reserve can cool by raising interest rates, energy-driven inflation is harder to control. That leaves the Fed in a tough position, whether to keep fighting inflation or shift toward supporting growth if the economy weakens.
At the same time, consumers are getting a near-term boost. Tax refunds are already supporting spending, especially for middle-income households. There is also discussion about possible tariff-related refunds, which could add more money into the system.
Even modest increases in take-home income can support spending on retail, travel, and services. That matters because the U.S. economy depends heavily on consumer demand. So far, households are still spending, although they are being more selective than they were immediately after the pandemic.
Timing also plays a role. With midterm elections approaching, policymakers often look for ways to support economic stability. While large stimulus programs may be unlikely, smaller steps, such as tax changes or targeted credits, can still provide support.
All of this creates a “tug-of-war” in the economy. Higher energy prices push inflation up, while fiscal support helps keep growth going. This mix can extend the economic cycle, but it may also delay a full return to stable, lower inflation.
For businesses, this means ongoing cost uncertainty, especially for those heavily affected by energy prices. For consumers, it means mixed results. Extra income can help, but higher prices, especially for fuel and goods, can offset those gains.
The political backdrop adds another layer. In election years, there is often a focus on maintaining steady growth and stable markets. While policymakers cannot control global events like oil shocks, they may take steps to soften the impact. The risk is that these efforts could keep inflation higher for longer or add to government debt if not carefully managed.
In short, the economy remains resilient but faces competing pressures. Oil-driven inflation and policy support are pulling in opposite directions. As a result, markets may remain volatile, and economic headlines will likely continue to drive short-term movements.