It's Consider This, where every day we go deep on one big news story. Today, living in a war economy. Our country's booming now, despite the fact that we're in a, I call it a mini-war, because that's all they are. A mini-war. That's what President Trump is calling the war with Iran. And on Monday, at a White House event for Small Business Week, he seemed to downplay how that war is affecting the U.S. economy. Thanks to these pro-growth policies, our economy is roaring. and factory construction is way up. Consumer confidence is way up. Business investment is more than triple compared to that of just a short time ago. The data does not reflect consumer confidence being way up. American families are feeling the pinch. Mortgage rates are climbing. Gas prices are the highest they've been in nearly four years. And that is driving up the cost of food. Consider this. We already had an affordability crisis in the U.S. Now the war with Iran is making life more expensive. From NPR, I'm Mary Louise Kelly. Every single complex society that's ever existed in the history of the world so far has collapsed. Do we think we're different? Are We Doomed? The new podcast about the end of the world. I don't like where this is headed. I'm Ben Bradford. Join me for Are We Doomed? Part of the NPR network. Listen now wherever you get your podcasts. It's Consider This from NPR. President Trump says the economy is roaring. That as Americans are paying an average price of $4.48 a gallon for gas on Tuesday, a year ago it was $3.17. The reason for that increase is the U.S.-Israel war with Iran, which resulted in the closing of the Strait of Hormuz. Gas prices are just one measure of the cost of living in the United States, but they're a significant one. We wanted to take a few minutes to measure how the war is affecting Americans' bottom line. So we have called Martha Gimbel. She's co-founder and executive director of the Budget Lab at Yale. We check in with her from time to time about the economy. Martha Gimbel, welcome back. Thank you so much for having me. I feel like you only check in with me about the economy when it seems like things are about to get weird. Which is frequently, which is why we speak to you often, I guess. Speaking of weird gas prices I feel like I spent more time talking about gas prices these last eight weeks than any other eight weeks I can recall Just briefly lay out why they are so significant when we talking about the big picture health or lack thereof of the economy I think there's three things to keep in mind here. One is people need to spend money on gas prices, right? It's not a luxury good. They need to go to work. They need to drop their kids off at school. Second is we see them, right? I can tell you what the gas prices are at the place right across the street from me where I usually get gas. I don't know offhand how much a gallon of milk has changed since last month, I know about what it is, but I don't have the exact down to the penny number in my head. Gas prices, you see them everywhere. They're on the big sign as you drive around. Yeah. The big sign. But the third thing, and I think this is really important, is gas prices and energy prices in general flow through to everything else. You need energy to produce all of these other goods and services that we buy. So, for instance, right after the pandemic, we spent a lot of time talking about the rise in used car prices. That was astonishing. That affected people. But it wasn't like you needed a used car to produce food or apparel. Energy flows into everything else that we buy. And so when you start seeing energy prices going up, it can often be a leading indicator that some other prices are going to start rising too. So with that as context, let me ask you to help us fact check the comment I just attributed to President Trump, that it's roaring. He said that while he was speaking to a group of small business leaders. He was at the White House. This was on Monday. He said a few things about the economy. Thanks to these pro-growth policies, our economy is roaring and factory construction is way up. Consumer confidence is way up. Business investment is more than triple compared to that of just a short time ago. I guess my question there, Martha, is our economy roaring? Our economy is not roaring, but it has been fine, right? You know, the unemployment rate has stayed relatively low. Economic growth, if you look at non-volatile measures, has been fine. And that sounds like damning with faint praise, but you know, fine is nothing to sneeze at. Slow and steady wins the race here. I do want to seize on one thing the president said, which is about consumer confidence. That was where I was going next. He says it way up Does that square with what you hear with what we hear from consumers It not You know consumers have been expressing for quite some time that they are not happy You get some, you know, wiggles month to month. But in general, consumer sentiment is quite low. And one of the things that we know that does really impact consumer sentiment is energy prices. And so just going back to where we started, not only is consumer sentiment relatively low right now, it's probably going to face some headwinds in the months to come. I'll drop a marker here with some data. We were looking at April's Consumer Sentiment Index. This is from the University of Michigan. They found it hit an all-time record low, and that includes lower than June 2022 when we were still in the midst of the pandemic. Other things top of mind for you, because we've been talking about the cost of living and affordability since well before President Trump returned to office. We've been talking about it more in this last year since the Trump administration began imposing steep tariffs on a lot of other countries. But what are the other aspects of the economy that are just making it challenging right now for Americans? You know, I think housing is still a real pain point for a lot of people. You know, housing prices are still relatively speaking high. And a thing that makes a huge difference for the affordability of buying a house is where mortgage rates are. Mortgage rates, you know, have not been coming down. And a war, even a quote unquote mini war in the Middle East is going to make it much, much harder for the Federal Reserve to cut rates. coming into this year, people really assumed that the Federal Reserve was plausibly going to cut rates more than once this year. And that's going to flow through to the mortgage market. People have been moving away from that as the Iran war has extended on. So let me focus us on the Iran war and how that is affecting all of these challenges we have been talking about? I guess, number one, you're saying mortgage rates aren't going to shift, inflation isn't going to shift because of the war? I mean, first of all, inflation could shift exactly because of the war. You know, just month over month, in one month, energy prices in March went up over 10%. 10 That is the most that they have gone up in a single month since 2005 And I think that people are anticipating that those prices are going to keep rising And I think one thing that really important for people to keep in mind here is that this war has affected supply It has taken supply off the market. Every day that it goes on, it takes more supply off the market. And also, it's doing long-term damage to production facilities in the Middle East. So it's not like if the war ended tomorrow, they can all just flip a switch and send out all the oil that's been missing for the past however many weeks. If the war did end tomorrow, if somebody could wave a magic wand, open the Strait of Hormuz as you and I speak, pull off a permanent deal between the U.S. and Iran, you're saying Americans would still be facing an affordability crisis? I am saying that you would expect any increase in energy prices in the coming months to be substantially moderated. We have been getting through this partly because countries have been spending down on their inventories. And so they've been trying to avoid putting their citizens into a situation where there is a literal shortage of gas and oil. But you're still going to see some upward pressure on prices here because there's been long-term destruction of supply and it takes time to rebuild these facilities. Are there steps the administration can take in this moment that we're in right now to ease the pressure on Americans? I mean, apart from the one that you just mentioned of ending the war, this is, you know, why wars are such an economic quagmire. There's not a really good solution here. And you've seen this around the world, right? You know, countries that are trying to handle this have been doing things like suggesting people work from home one day a week such that they're not spending money on commuting. when you have actual removal of supply. There's just not that much you can do to prevent higher prices. All that said, when are gas prices going to go down? If you find out, let me know, and I will time the filling up of my gas tank accordingly. Martha Gimbel is executive director and co-founder of the Budget Lab at Yale University. Thanks so much. Thank you for having me. This episode was produced by Karen Zamora with audio engineering by Ted Meebane. It was edited by Christopher Intagliata and Courtney Dorning. Our executive producer is Sammy Yenigan. It's Consider This from NPR. I'm Mary Louise Kelly.
