What could the US-Iran ceasefire mean for inflation, jobs?
Markets rallied after Iran and the U.S. announced a ceasefire earlier this week, but a white-hot inflation report on Friday soured the mood, revealing a surge in prices set off by the conflict.
The combination of relief and reality check captured the uncertain moment for the U.S. economy, according to some analysts, as resolution of the global oil crisis remains in doubt.
The two-week ceasefire may allow the U.S. to avert a recession by preventing an escalation of the war and keeping oil prices below the stratospheric levels feared at the outset of the conflict, some analysts said.
But, they added, the economic damage will likely prove noticeable even if the ceasefire leads to lasting peace, putting strain on household budgets and slowing economic growth for months to come.
"The good news is -- if the ceasefire holds -- we'll likely avoid a recession," Mark Zandi, the chief economist at Moody's Analytics, told ABC News.
"But there's already been a big hit and the hit is still coming," Zandi added, noting that oil and gasoline prices remain far higher than there were before the war.
The Middle East conflict prompted Iran's effective closure of the Strait of Hormuz, a critical waterway that facilitates the transport of about one-fifth of the global supply of oil and natural gas.
As part of the ceasefire agreement, Iran says it will allow tankers passage through the Strait of Hormuz as long as they coordinate with the nation's military.
The resumption of tanker traffic remains uncertain, however. It was suspended on Wednesday after Israeli attacks on Lebanon, Iran's semi-official Fars News Agency reported.
U.S. oil prices soared more than 75% over the early days of the war. Gasoline prices notched their largest single-day rise since March 2022, just weeks after the Russian invasion of Ukraine, according to GasBuddy petroleum analyst Patrick De Haan.
The prospect of an acute and prolonged oil shortage threatened to drive up prices for a vast array of goods, sapping energy from consumer spending, which powers most of the nation's economic growth. Some prominent analysts issued gloomy forecasts in the early weeks of the war about the heightened risk of a U.S. recession.
A durable ceasefire would likely dial back the risk of a recession and prevent worst-case scenarios involving widespread job losses and runaway inflation, some analysts said.
"The ceasefire reduces the risk of a further rise in energy prices, which will ease inflation, reduce the impetus for rate hikes and lower the risk of recession if the ceasefire holds," Joseph Brusuelas, principal and chief economist at RSM, told ABC News in a statement.
After the ceasefire, oil prices plunged and bond yields fell, loosening up some of the cost crunch for consumers and businesses alike. Gasoline prices in the U.S. stood at $4.15 on average per gallon on Friday, marking a rare drop in gas prices amid the conflict, though prices remain $1.17 higher than before the war, AAA data showed.
Even if the U.S. averts a recession, some analysts said, the economic consequences of the war could prove substantial.
An inflation report on Friday offered an initial look at the scale of the disruption. Prices rose 3.3% in March compared to a year earlier, marking a steep rise from a year-over-year inflation rate of 2.4% in the prior month. Annual inflation jumped to its highest level in nearly two years, U.S. Bureau of Labor Statistics (BLS) data showed.
The price pressure will likely continue, some analysts noted. Crude prices fell after the ceasefire announcement but remained highly elevated. U.S. oil prices topped $98 a barrel on Friday, standing nearly 50% higher than their pre-war level.
"We expect global oil supply normalization to take time, with prices likely to remain elevated relative to pre-conflict levels in the months ahead," Brock Weimer, investment strategy analyst at Edward Jones, told ABC News in a statement.
Elevated prices could pinch consumer spending and dent business revenue, triggering a slowdown in economic growth, some analysts said.
Gregory Daco, chief economist at accounting firm EY, forecast that U.S. annualized gross domestic product (GDP) would slow to a sluggish pace of 1.6% by the end of this year. As recently as the third quarter of last year, GDP soared at a rate nearly three times faster.
Some analysts said the outlook remains fraught with uncertainty, since many current forecasts depend on the durability of the ceasefire and the resumption of tanker traffic through the Strait of Hormuz.
Mark Blyth, a professor of political economy at Brown University, said a wide range of outcomes is in play for the U.S. economy as fast-moving developments alter the prospects for the end of hostilities.
"All bets could be off in a week," Blyth said.
