Financial markets on Monday indicated that any damage to the U.S. economy from the military conflict between the U.S. and Iran is likely to be minimal.
After futures quivered in the darkness of negative territory all weekend, the major U.S. stock indexes turned flat to slightly positive on Monday. Oil prices rose but not by very much. Brent crude, the global benchmark, climbed by less than seven percent, ending the day around $77.65 a barrel.
A lot of attention has been on the price of oil, with traders gaming out closure odds for the Strait of Hormuz, potential production losses, and whether missiles will start landing on energy infrastructure.
But the bigger risk to the American economy may not be in the Persian Gulf. It may be in the Eccles Building. If the Federal Reserve misreads a supply shock as an inflation problem that demands a hard policy response, it could turn a manageable disruption into a self-inflicted recession.
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