Iran war adds pressure on US economy as core inflation hits 3.3% and jobless claims climb

The US economy faces renewed pressure as inflation persists and geopolitical tensions escalate. The Commerce Department reported that the personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred inflation measure—rose 0.4% in April, with core inflation (excluding food and energy) increasing 0.2% month-over-month and 3.3% annually. Overall inflation stood at 3.8%, remaining well above the Fed’s 2% target. The ongoing conflict involving Iran has disrupted global trade and energy supplies, pushing up oil prices and supply chain costs. The Strait of Hormuz, a critical oil route, has seen disruptions, leading to a 12.3% jump in US retail gasoline prices in April alone, a more than 50% surge since the conflict began in late February. Economists warn that rising fuel and transportation costs are further straining consumer budgets, compounding inflationary pressures already exacerbated by President Donald Trump’s import tariffs. The latest inflation data is likely to keep the Federal Reserve cautious about cutting interest rates. Markets now expect the Fed to hold its benchmark rate in the 3.50% to 3.75% range, with some policymakers even considering another rate hike if inflation remains elevated. Fed officials prioritize the PCE index for its comprehensive view of consumer spending trends. Labor market data showed signs of softening, with initial jobless claims rising to 215,000 for the week ending May 23, slightly above expectations. Continuing claims also increased to 1.786 million, though layoffs remain relatively low. Economists note hiring has slowed, particularly affecting young graduates and first-time job seekers, while the unemployment rate is projected to hold steady at 4.3% for May. One positive development came from the manufacturing sector, where durable goods orders jumped 7.9% in April, far exceeding forecasts. Excluding transportation equipment, orders still rose 1.1%, signaling resilience in certain industries. However, the combination of high inflation, slowing growth, and geopolitical risks continues to create uncertainty for the US economy.