WASHINGTON, May 2– The U.S. economy expanded at a 2 percent annualized pace in the first quarter of 2026, signaling continued growth. However, challenges loom on the horizon, with geopolitical tensions, particularly the ongoing conflict in Iran, and rising oil prices potentially creating headwinds that could dampen future growth prospects.
The growth marks a notable acceleration from the previous quarter’s tepid 0.5 percent increase, though it fell slightly short of economists’ forecasts, which had anticipated a 2.3 percent rise.
Despite the encouraging growth, economists remain wary about the potential economic fallout from the ongoing conflict in Iran.
As a result, many are warning that the United States may face limited growth for the remainder of the year, particularly as external pressures continue to mount. “I think 2 percent growth is as high as we will see for most of 2026.
Too many headwinds,” Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told Xinhua.
With the Iran war passing its two-month mark, many economists said the longer the conflict drags on, the more detrimental it could be to the U.S. economy.
The war has also made the Federal Reserve hesitant to cut interest rates, even as investors increasingly push for such a move.
With oil prices remaining over 100 U.S. dollars a gallon — which pushes up the costs of many goods — a rate cut may not be on the horizon.
“As long as the economy continues to grow and companies are able to grow earnings, we can see higher stock prices even in the face of higher energy prices and inflation,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, was quoted by CNN as saying.
“However, the longer the war drags on, the more investors will grow nervous, and we could see some pullbacks as fears ebb and flow,” Zaccarelli said.
Other economists partially echoed those sentiments, maintaining that the conflict will determine growth for the rest of the year.
“The outcome of the Iran War will be the major factor determining growth in the second quarter and likely for the rest of the year,” Dean Baker, co-founder of the Center for Economic and Policy Research, told Xinhua.
“Higher oil prices did start to affect inflation measures, but we are just beginning to see their impact,” Baker said.
Some economists, including Baker, noted the economy was on shaky ground even before the conflict began. The additional stress from an overseas military operation has left the U.S. economy in a less-than-ideal position.
“Even before the war began, the economy was not looking great,” Baker said, pointing out that almost half of consumption growth was driven by healthcare spending.
“Spending on goods was flat, and spending on hotels and restaurants was actually falling.
Investment in data center-related components was strong, but weak in all other components,” he added. “This is not a good picture.” At the same time, Americans have felt the sting of inflation since it took hold years ago amid pandemic-related supply chain constraints and massive government spending.
Rents, home prices and food costs remain historically high for ordinary Americans, putting additional pressure on households. (Namibia Daily News/Xinhua)
