LIVE MARKETS-US economy seen likely to weather Middle East war at this point
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US ECONOMY SEEN LIKELY TO WEATHER MIDDLE EAST WAR AT THIS POINT
The U.S.-Israel war with Iran may be a manageable risk for the U.S. economy, though some low-income consumers could hurt some consumers, according to an Oxford Economics report.
The U.S. economy, assuming a "limited military campaign," is in a good position to "weather this geopolitical shock thanks to structural factors,” writes Bernard Yaros, lead U.S. economist at Oxford Economics, in the report.
"The economy will be resilient, but the rise in oil prices will underscore the bifurcation between low- and high-income consumers," the report says, noting that the longer the conflict lasts the more likely higher gasoline prices could impact a wider range of households.
The conflict will result in a boost to production by oil and gas industry companies, but "capital discipline imposed by
shareholders on large oil and gas firms is another limiting factor."
Energy shares .SPNY are up 0.7% on Thursday and have mostly jumped this week along with spikes in oil prices since the start of the war on Saturday.
At the same time, higher oil prices could hurt investment and hiring in other industries.
"The outlook is still favorable for business investment this year thanks to AI and the One Big Beautiful Bill Act, but recent
events suggest the renewed bout of uncertainty will drag on non-AI investment," the note says.
The war is not yet going to result in Oxford Economics making major changes to its March baseline forecast. The firm also is maintaining its baseline forecast for the Federal Reserve to resume interest rate cuts by midyear.
"The Fed will look through the boost to inflation from higher oil prices as a onetime phenomenon but will be on guard for any movements in long-run inflation expectations, which have so far been quiescent," it notes.
(Caroline Valetkevitch)
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