The escalating conflict with Iran is increasingly posing economic challenges for the United States while complicating policy decisions for the Federal Reserve.

Surging oil prices, disruptions to shipping routes in the Middle East, and emerging signs of weakness in the U.S. labor market are creating a difficult economic environment just as inflation had begun to show modest improvement. For policymakers, the situation raises concerns about a potential return of “stagflation” — a combination of rising prices and slowing economic growth that could limit the Fed’s ability to reduce interest rates and ease financial pressure on consumers.

Gasoline prices climbed Friday to their highest level since September 2024, according to AAA, with the national average reaching $3.32 per gallon. At the same time, U.S. crude oil recorded its largest weekly increase since record-keeping began in 1983, signaling that fuel costs could continue rising in the coming weeks.

The economic pressure comes as the labor market shows signs of cooling. New data released Friday by the Bureau of Labor Statistics showed the U.S. economy lost 92,000 jobs last month. Revisions to earlier reports also indicated that December and January employment figures were overstated, with 69,000 fewer jobs created than initially reported.

The combination of higher energy costs and weakening job growth presents a difficult balancing act for Federal Reserve officials as they weigh whether to maintain current interest rates or consider future cuts to support the economy.