The escalating tensions between the U.S. and Iran have drawn the attention of financial markets, but analysts at Bank of America say the broader threat to the U.S. economy appears contained for now.
In a research note, BofA economist Meghan Swiber said the bank has not significantly altered its baseline outlook for the U.S. economy despite the latest geopolitical developments.
“We believe U.S. macro risks are likely limited unless [there is a] pronounced oil spike,” Swiber wrote, adding that the main near-term implications may involve the timing of Federal Reserve rate cuts and potential movements in the U.S. dollar.
Oil prices remain the primary channel through which the conflict could affect the macroeconomic environment.
According to Bank of America, a widely cited rule of thumb suggests that a $10 increase in crude oil prices could raise personal consumption expenditures inflation by about 0.1 percentage points while reducing GDP growth by a similar margin.
“The Fed estimates a 10% increase in the oil price raises PCE inflation by roughly 10bp near term,” Swiber wrote. However, she noted that the effect usually fades within about a year as higher energy prices dampen demand for other goods and services.
The bank also emphasized that the U.S. economy is now less sensitive to oil price shocks than in previous decades, as the country has become a net exporter of oil and natural gas, allowing domestic producers to benefit from higher prices.
Looking ahead, the Federal Reserve is expected to remain cautious. Swiber said policymakers are likely to adopt a wait-and-see stance while evaluating whether rising oil prices lead to broader inflation pressures or slower economic growth.