Global tensions, consumer spending patterns and emerging technologies are shaping the current economic outlook, according to guests on the latest episode of the Iowa Economy Podcast hosted by Business Publications Corp. President and Group Publisher Chris Conetzkey.

The episode featured Bryce Kanago, a professor in the economics department at the University of Northern Iowa, and Jerrica Marshall, executive director of the Directors Council and a member of the Federal Reserve Bank of Chicago’s Advisory Council on small business, community and economic development, agriculture and labor.

During the conversation, the guests discussed how the conflict in Iran, shifting consumer behavior and workforce changes are affecting economic conditions. 

Here are six takeaways from the discussion.

Rising oil prices could create a double hit for the economy

Kanago said the conflict in Iran could drive up oil prices, increasing costs for businesses while also limiting consumer spending.

Higher fuel costs ripple through the economy by raising transportation and production expenses, which can lead to higher prices for goods and services. At the same time, consumers have less disposable income when fuel prices climb.

“Rising oil prices would raise inflation, probably reduce output and raise unemployment,” Kanago said, describing the situation as “double bad.”

How long the conflict lasts will determine how long those pressures persist, he noted.

The Federal Reserve faces competing pressures

The potential inflationary effects of higher oil prices could complicate the Federal Reserve’s policy decisions.

Kanago said rising inflation would normally push the Fed toward raising interest rates. However, if economic output weakens at the same time, the central bank could face pressure to lower rates to stimulate growth.

Before the conflict began, he said, markets largely expected the Fed to reduce interest rates by roughly half a percentage point over the next year to year and a half. New global developments could make that path less certain.

Consumer spending remains key economic driver

Marshall said consumer spending has been the primary driver supporting economic growth recently, particularly as job creation has been modest.

But new pressures, including geopolitical instability, could limit households’ ability to spend.

“There’s a nervousness to make large purchases and decisions right now,” Marshall said, noting that many consumers are delaying home purchases, car purchases and discretionary spending.

Lower- and middle-income households are under increasing strain

Kanago said spending patterns have shifted in recent years. The top 10% of income earners now account for roughly half of total consumer spending.

Meanwhile, lower- and middle-income households are feeling increasing financial pressure.

Indicators of that stress include rising delinquency rates on auto loans and credit cards. Many households have struggled to keep pace with higher prices, leaving them “credit constrained,” Kanago said.

Marshall added that disparities remain significant in some communities. In Polk County, unemployment among Black residents is just over 9%, compared with about 4% statewide.

Average annual income for Black households in Polk County is about $44,000, forcing many families to make difficult decisions about which expenses to prioritize.

Local voices help inform Federal Reserve policy discussions

Marshall said her role on the Federal Reserve Bank of Chicago’s advisory council allows community leaders from several Midwest states to provide direct input on economic conditions.

“We’re able to talk about the [on the] ground perspectives of what communities across the region are experiencing,” she said.

The council brings together voices from across the Federal Reserve Bank of Chicago’s region to discuss issues such as housing stability, workforce participation, credit access and small business development.

Marshall said data she shares in those discussions comes from the Directors Council’s One Economy report, which estimates the region loses about $1 billion annually in income because of systemic economic barriers.

The report also highlights disparities in homeownership, including an estimated 5,200 fewer homeowners due to barriers to housing access.

How AI could reshape the future workforce

Both guests said artificial intelligence is likely to play a growing role in the labor market.

Kanago said early signals suggest AI could reduce some entry-level job opportunities as businesses automate certain tasks.

At the same time, Marshall said the technology presents opportunities to train and upskill workers.

“We’ll really be paying attention to how that is implemented here, as far as what new programs are available, how we can upskill those workers and how we can make sure that our community is represented in that new endeavor,” she said.