What the Fed has observed about the impact of war on the economy so far

Officials from the Federal Reserve gathered for the last time just over two weeks after the start of the US war with Iran. At the time, they had minimal data beyond the rise in gasoline prices to assess the conflict’s impact on the economy and interest rate outlook. As they reconvened this week, indicators in the past six weeks have not significantly refined this assessment, especially in critical areas such as employment, inflation, and overall activity.

Here is an overview of the data they had since the war began at their mid-March meeting, and its evolution since then.

EMPLOYMENT

The labor market has shown little visible impact from the war so far. Overall employment growth figures have been skewed by factors such as a strike in the California healthcare sector and unfavourable weather conditions, providing few actionable signals. The unemployment rate slightly declined in March, mainly due to a contraction in the labor force. Layoff activity, measured by weekly reports on new jobless claims, has shown minimal change across eight releases since the conflict began, six of which came out after the Fed’s last meeting.

INFLATION

Overall inflation has surged since the start of the war, driven by rising gasoline prices surpassing $4 per gallon on average nationally. Measures like the Consumer Price Index (CPI) and Producer Price Index (PPI) have shown an unprecedented price acceleration in three or four years. Excluding food and energy costs, broader price growth pressures appear somewhat less pronounced so far.

However, the Fed has not formally received the war period Personal Consumption Expenditure (PCE) price index report it uses to set its 2% inflation target. Estimates based on CPI and PPI suggest that inflation has further deviated from the target since the war began, both overall and core inflation.

GROWTH & CONSUMPTION

Fed officials will not have a GDP report covering any part of the conflict period for review after this week’s meeting. The latest figures still concern the fourth quarter of 2025, a period where economic growth was hindered by a record federal government shutdown. Economic growth is expected to have rebounded to 2.3% in the first quarter, but the range of estimates, from -0.2% to +3.9%, is unusually broad given the uncertainty surrounding the war’s impact.

As with GDP, Fed officials have not seen a comprehensive report on consumer spending including the conflict period. However, other consumption measures, such as retail sales, have advanced both overall and for the control group.

INDUSTRIAL ACTIVITY

Certain manufacturing indicators have benefited from clients stocking up on goods in anticipation of shortages, as global supply chains falter due to the war. Yet, the Fed’s own data on industrial production shifted from the strongest gain in a year in February to the sharpest decline in 18 months in March.