Higher energy and borrowing costs are now threatening US growth despite relative strength

Higher energy and borrowing costs are now threatening US growth despite relative strength. The US Commerce Department recently halved its growth estimate for the fourth quarter of 2025, revising it from 1.4% to just 0.7%. Spillovers from the US-Israeli war against Iran are materializing as higher energy prices — US gasoline rose 30% and diesel 40% in the first three weeks of the conflict — and rising borrowing costs. These are feeding broader price pressures, with higher input costs for semiconductors, fertilisers, and air travel now being passed on to consumers. Inflation, already persistent, has marked six consecutive years of the Federal Reserve missing its 2% target. The resulting cost-of-living pressures are hitting hardest in a K-shaped economy where wealth and opportunity are deeply unequal. Financial fragilities are emerging: private credit funds are restricting withdrawals, bank financing is eroding, and leverage in parts of the global bond market is drawing concern amid a sell-off. Over the past year, excessive hype-driven capital has flooded into AI and AI-adjacent ventures. In a stagflationary environment of slowing growth and high inflation, these risks could coalesce, tightening financial conditions. The Federal Reserve, already weakened by forecasting errors, policy slippages, and a turbulent leadership transition under political pressure, is ill-positioned to manage a crisis. The most vulnerable segments of the US population are at considerable risk from the convergence of inflation, slowing growth, and financial instability.