U.S. economy faces slower growth and inflation pressure in Q2

Fed Rate Pause + Hormuz Risk: Outlook for the U.S. Economy in Q2 (April–June)

Hello, I’m Thomas Park. With the Fed holding interest rates steady and oil prices rising amid Iran’s blockade of the Strait of Hormuz, the U.S. economy faces a major test in April–June. In this column, I’ll highlight the key trends shaping the U.S. economy in Q2.

Rate Pause Signals the Start of a “Slowdown”

The Fed’s decision to hold rates at 4.25–4.50% sends a clear message: the economy is no longer overheating and has entered a period of slowing growth.

- Slower consumer spending growth
- More cautious business investment
- Employment holding up, but new hiring slowing

In other words, Q2 is shaping up to be more about holding steady than growing.

Rising Oil Prices: A Direct Headwind for the Q2 Economy

Developments in the Strait of Hormuz will have an immediate impact in Q2.

- Higher oil prices → immediate increases in gasoline and shipping costs
- Higher business costs → pressure to raise prices
- Lower consumer purchasing power

This is not a shock for the fourth quarter; it is already beginning to hit.

Q2’s Key Scenario: “Slower Spending + Renewed Inflationary Pressure”

The core dynamics this quarter are straightforward.

1. Consumer spending slows
Higher oil prices → higher living costs → reduced spending

2. Inflation rises again
Higher energy and transportation costs → broader price increases

3. The Fed has little room to act
Inflation makes rate cuts difficult
Economic weakness makes rate hikes risky

→ Result: stagnant growth (soft stagnation)

Bottom Line for the U.S. Economy in Q2

- It is unlikely to plunge, but
- It is unlikely to rebound strongly either

An economy that “holds on” as “pressure from rising living costs grows”

In particular, people may feel that economic conditions are worse than the official indicators suggest.

One Key Takeaway

Right now, oil prices are having a stronger effect on the U.S. economy than interest rates.

I’ll continue sharing firsthand insights from the field to help inform your economic decisions. See you in the next column.