For Trump, a Promised Economic Boom Collides With the Costs of War

To President Trump, the U.S. economy appeared to be moving in his direction at the turn of the year.

The stock market was buoyant, prices had started to level out and White House officials saw ample evidence for robust growth on the horizon. There were mounting signs of strain, but the president projected optimism anyway, as he tried to convince a restive public that the nation’s fortunes had improved.

But that was before Mr. Trump started the war in Iran in a move that has unnerved consumers and businesses around the world. Now, by his own hand, the president has upended his vision for the nation’s economic trajectory, creating a new set of hazards months before the midterm elections.

For Mr. Trump, the greatest threat is the rapid rise in energy prices, which have rippled across the economy in ways that have pinched American families even beyond the gasoline pump. The soaring oil costs have at times spooked financial markets, one of Mr. Trump’s preferred barometers for success, and threatened to aggravate what has already been a long, tough battle with inflation.

Gas prices have also undercut Mr. Trump’s lofty projections of growth this year, which he and aides previously pegged at 4 percent or more. Now, their talk of a boom has been replaced with a new round of speculation among economists over the odds of a recession, as families and businesses pull back in the face of higher gasoline prices and elevated uncertainty.

Not everything was as rosy as the White House had claimed before the war in Iran began. The first year of Mr. Trump’s second term touched off a period of immense disruption, particularly in the labor market, which saw new job cuts as businesses grappled with the twin shocks of a trade war and new technology.

But those weaknesses have hardly abated as Mr. Trump forges ahead with what he frequently describes as a “short-term excursion” in Iran. Speaking at a political rally in Hebron, Ky., on Thursday, the president barely acknowledged the growing pain at the pump, as he proclaimed his economic agenda to be an unfettered success.

“Inflation is plummeting, incomes are rising, the economy is roaring back and America is respected again,” he said.

A series of economic indicators released by the government one day later appeared to tell a different story.

Inflation actually ticked up to open the year, according to a gauge preferred by the Federal Reserve, with prices rising at an annual rate of 2.8 percent. That cut into what had been an increase in personal income in January. And the government found that the economy grew more slowly in the final three months of 2025 than it had initially estimated. The dip came as a result of the government shutdown during that period.

Olu Sonola, the head of U.S. economic research at Fitch Ratings, said in an analysis on Friday that the inflation report, in particular, painted a picture of the economy in which prices were heating up and consumers were “losing steam.” But all of the data was collected before Mr. Trump began his war with Iran, which Mr. Sonola said had threatened to “squeeze” households even further, putting future growth at risk.

By the end of trading on Friday, global oil futures had reached $103 a barrel, having only briefly and barely budged after the United States joined other countries in releasing fuel from their reserves earlier in the week. Meanwhile, the average cost of a gallon of gasoline topped $3.67 nationally, according to the AAA motor club, with prices on Saturday marking a roughly 25 percent increase from a month ago.

The developments threatened to undercut Mr. Trump’s earlier predictions of a roaring economy in 2026. With eight months until Americans head to the polls to determine the composition of Congress, the president has labored to sell the public on the promise of a rapid turnaround, pointing to his tariffs, deregulatory policies and tax cuts.

“Prior to the initiation of the conflict, a strong case could be made that 2026 was going to be a strong year for growth,” said Joseph Lavorgna, the chief economist at SMBC Nikko Securities America, who until recently served as a top adviser at the Treasury Department.

But, Mr. Lavorgna continued, a sustained spike in fuel costs posed real risks to consumers and businesses. If it were to continue for months, he predicted it would “have a detrimental effect on the economy in the first half of the year.”

Some of those consequences became apparent this past week.

As U.S. strikes on Iran intensified, the S&P 500 notched one of its worst days of the year, reflecting a growing unease among investors that Mr. Trump was nowhere near finished with the war. Mortgages also became pricier, as angst in the bond market caused interest rates on home loans to tick up.

Even the fate of Mr. Trump’s vaunted tax refunds appeared to be in new doubt. A growing array of analysts began to worry that costlier gas prices would cut into tax refunds that the president had long promised would be generous.

Against this backdrop, investors have scaled back their expectations for the Federal Reserve to lower interest rates anytime soon. By the end of the week, futures markets pointed to no cuts in 2026, down from two cuts forecast at the start of the year. Mr. Trump, however, continued to call for rate reductions this past week, amping up his pressure on the central bank at the height of the war.

“He should be dropping Interest Rates, IMMEDIATELY, not waiting for the next meeting!” the president posted on social media referring to Jerome H. Powell, the Fed chair.

The energy crunch was nonetheless reminiscent of the early days of Russia’s war on Ukraine in 2022, which similarly sent oil and gas soaring, frustrating consumers already pained by the sting of high inflation. But Mr. Trump largely dismissed the latest turbulence as a temporary and necessary setback in pursuit of stability in the Middle East. He predicted on Friday that gas prices, in particular, would come “tumbling down” once the hostilities concluded.

Tomas J. Philipson, a professor at the University of Chicago who served as an economic adviser to Mr. Trump in his first term, said that the White House fully anticipated the rise in oil — and viewed it as a necessary cost toward its national security goals.

“The economy is a side effect of a larger goal here, which is to disarm Iran,” Mr. Philipson said.

But some economists saw more severe shocks looming in the distance. In a gloomy forecast released on Wednesday, analysts at Goldman Sachs predicted that brent crude oil could average about $98 per barrel in March and April, and fall back down toward prewar levels only by the fourth quarter of the year.

As a result, they predicted that inflation would worsen in 2026, reaching 2.9 percent by the end of the year, and possibly jump even higher to 3.3 percent if oil prices skyrocketed well above $100 per barrel.

The Goldman Sachs report similarly estimated that oil prices could cut into the nation’s gross domestic product, a measure of total output, and cause an uptick in the nation’s unemployment rate, estimating that the rate could peak at 4.6 percent by the third quarter of the year.

Not all economists have soured on the economic outlook, however. This past week, Nancy Lazar, chief global economist at the investment bank Piper Sandler, maintained her earlier forecast for roughly 3 percent growth this year, pointing to a host of positive forces, including tax refunds that should buttress consumers’ finances.

“The odds of a recession are still on the low side, because the economy has so many supports for growth,” Ms. Lazar said. “This needs to be a prolonged shift up in energy prices to really create economic damage.”

But even the temporary discomfort threatened to complicate Mr. Trump’s political task of assuaging the American electorate, which has increasingly awarded him poor marks in polls for his handling of the economy.

“Everyone was looking for a fiscal tailwin