US Economy Stumbles, Inflation Accelerates, War Threatens

Consumer spending, adjusted for inflation, was nearly flat in January, while inflation remains sticky-high at 2.8% (PCE) and is projected to exceed 3.5% soon. The job market is also weakening, with 92,000 jobs cut last month and minimal hiring throughout 2025.

Geopolitical tensions, specifically the Iran war, have exacerbated these issues, pushing gasoline prices towards $4 per gallon and causing a notable decline in consumer sentiment, particularly after the conflict began. Rising energy costs threaten to negate any gains from tax refunds, further squeezing household budgets already under pressure.

The Dow Jones has fallen for three consecutive weeks, potentially impacting wealthier households that have supported spending. Mortgage rates are also climbing, likely due to inflation expectations, which could deepen the housing market slump.

Analysts point to the government shutdown and a sharp decline in consumption as key factors in the economic slowdown, with underlying inflation pressures set to intensify.