US Economy Demonstrates Resilience Amid Rising Energy Prices

Economic Growth Amid Global Tensions

In the first quarter of 2026, the US economy displayed notable resilience, expanding at an annual rate of 2 percent despite the ongoing conflict with Iran, which has led to a significant surge in global energy prices. The Commerce Department's initial estimate of gross domestic product (GDP) for this period, released on Thursday, provides a first glimpse into the economic impact of the Middle Eastern conflict on fuel costs and business strategies. Although the increase in energy prices has somewhat hindered growth, private investments, consumer spending, and government spending remained robust during this timeframe.

"Overall, it’s a solid figure. Consumer spending has remained strong," stated Jason Draho, head of asset allocation for the Americas at UBS. However, he warned that this strength could be negated if elevated energy prices persist over the next six months.

The effective closure of the Strait of Hormuz has caused oil prices to soar by over 60 percent since late February. Brent crude, the global standard, has risen from approximately $70 per barrel before the conflict to as high as $120 per barrel this week. Recent contracts for July and August delivery have exceeded $100 per barrel.

Consumer spending, which constitutes about 70 percent of the US economy, increased by 1.6 percent in the first quarter. A broader metric that encompasses both consumer spending and private investment rose by 2.5 percent, up from 1.8 percent in the last quarter of 2025. Much of this growth is attributed to sustained heavy investment in artificial intelligence infrastructure.

Diane Swonk, chief economist at KPMG, remarked that the current economic climate resembles the early post-pandemic phase, where solid underlying growth was somewhat obscured by high prices affecting consumers' purchasing power.

Additional data released on Thursday indicated that the Federal Reserve's preferred inflation measure—the Personal Consumption Expenditures (PCE) price index—rose by 0.7 percent in March and 3.5 percent year-over-year, marking the fastest annual increase since 2023. Even the 'core' inflation rate, which excludes volatile food and energy prices, remained high at 3.2 percent.

On Wednesday, the Federal Reserve decided to maintain interest rates, emphasizing the need to assess the potential inflationary effects stemming from the oil crisis and last year's tariffs. Despite the positive economic indicators, consumer sentiment has plummeted to near-record lows, with the University of Michigan's consumer sentiment index dropping below even recession-era levels in April.

Economists highlight a growing disparity between the headline growth figures and the actual feelings of many Americans. While unemployment rates remain relatively low and most households can manage their expenses, the sharp increase in gas and energy prices is causing significant anxiety and straining budgets, particularly for middle- and lower-income families.

Aaron Seyedian, founder of Well-Paid Maids, a cleaning service that offers above-average wages, noted that his business has thrived due to its wealthier clientele, who are less impacted by rising costs. "I feel like I’ve heard scares like this before," he commented. "But I’ve just had a record couple of months in terms of revenue."

Nevertheless, many analysts caution that if the Middle Eastern standoff persists and energy prices remain high, the pressure on the broader economy could escalate. Researchers at Bank of America have pointed out that the surge in energy costs has already diminished some of the anticipated benefits from the White House's tax stimulus initiatives.

Currently, the US economy has demonstrated its ability to withstand the initial shock of the conflict. However, with the situation in the Middle East still unresolved and energy markets continuing to fluctuate, the upcoming months will be crucial in determining whether this resilience can be maintained or if it will begin to falter.