Donald Trump's war with Iran, initiated back in February, is now expected to lead to sustained higher global interest rates. This conflict has already triggered an initial wave of inflation, with further energy-related price escalations anticipated, prompting central banks worldwide to consider interest rate increases. This contrasts sharply with predictions from the previous year, when his "Liberation Day" tariffs had economists bracing for an economic slowdown.
The conflict is having a significant financial impact on various sectors in the US. Households could face an additional $4.6 billion in interest payments on new mortgages and consumer credit in 2026. Nonfinancial businesses, including corporations and small enterprises, might incur at least $12.7 billion in extra interest costs. The federal government is also expected to shoulder a substantial burden, paying at least $30.8 billion more in interest on new national debt in 2026.
Inflation remains a major concern, with the Bureau of Labor Statistics reporting a 4.2% increase over the past year as of May 2026. Gas prices jumped 7.0% in May alone, and fuel oil increased by 3.8%. Airline prices also saw a 2.7% rise in May. The Federal Reserve has held off on anticipated rate cuts and is now considering a potential 0.25 percentage point increase later in the year, with long-term interest rates, such as 30-year Treasury bonds, reaching their highest levels since July 2007.
The ongoing tensions and uncertainty surrounding the interim agreement with Iran, which temporarily lifts blockades in the Persian Gulf, are contributing to these persistent high rates. Concerns about minefields and the slow reopening of the Strait of Hormuz mean inflationary pressures are likely to persist, making life less affordable for Americans and driving up the federal government's debt burden. Economists at the Center for American Progress estimate that interest rates are at least 0.5 percentage points higher than they would have been without the war.
