If oil prices soar to $100, it raises concerns of 1970s-style stagflation. How big a threat is it?

The threat of stagflation looms over the U.S. economy and financial markets again as oil prices soar to $100 a barrel, effectively paralyzing the job market.

Stimulus measures such as interest rate cuts and government spending only worsen inflation, making high inflation and low growth a dual threat. If prices remain high, they could put a damper on not only the labor market but also consumer spending, which drives more than two-thirds of the U.S. economy.

“I have long been concerned about the threat of stagflation, due in part to a variety of inflationary pressures on the economy,” said Eric Noland, chief economist at CME Group. “We have a huge budget deficit, inflation is above target, and the central bank is easing policy anyway. And we’re going to see an extra $100 per barrel of oil.”

Markets were reeling again on Monday over the prospect of prolonged fighting in the Middle East. In early trading, U.S. crude soared above the $100 per barrel milestone for the first time since 2022, but prices eased into the afternoon.

The spike in energy costs comes just days after the Bureau of Labor Statistics reported that the economy lost 92,000 jobs in February and the unemployment rate rose slightly to 4.4%. The weak jobs report follows a pattern of stagnant job growth that began in early 2025, raising fresh concerns that the strong growth spurt that lasted much of last year may have run its course. Total job growth for all of 2025 was 116,000, 5,000 fewer than the previous year’s monthly average.

At the same time, core inflation, measured through the Federal Reserve’s preferred indicators, was 3% last time, completely exceeding the central bank’s target.

The last time the economy suffered an oil-induced stagflation shock was in 2022 after Russia invaded Ukraine, but even then it fell short of the severe pattern of the 1970s. Similar concerns were raised when the Trump administration imposed heavy tariffs in April 2025.

Indeed, there have been multiple threats of stagflation over the years, most of which failed to materialize as the economy stabilized.

For most economists and Wall Street strategists, the main factor this time around is duration. If the situation in Iran can be resolved within weeks, as President Donald Trump has promised, perhaps the shock of stagflation will be contained. Crude oil futures have signaled lower prices throughout the year, but that can be an unreliable guide to where prices will ultimately head.

“Higher oil prices and higher inflation are going to be a shock,” said Jim Caron, chief investment officer of portfolio solutions at Morgan Stanley Investment Management. “But if oil prices rise long enough, you’ll start to worry about growth and bond yields will start to fall. If bond yields are falling because people are worried about growth, then you’re in stagflation mode.”

Bond yields have mostly risen during the Iran crisis, a sign that investors are pricing in inflation concerns from rising oil prices.

Similarly, markets are rolling back expectations for Fed rate cuts, betting that the Fed will focus more on sticking to its 2% inflation target than on revitalizing a labor market where both hiring and layoffs are low.

“The U.S. economy and stock market are currently caught between Iran and a difficult situation. So is the Fed,” wrote market veteran Ed Yardeni, founder of Yardeni Research. “If the oil crisis continues, the Fed’s dual mandate will be caught between increasing the risk of higher inflation and higher unemployment.”

Yardeni raised the probability of 1970s-style stagflation to 35%, citing the Iran war as “the latest stress test of the resilience of the U.S. economy since the turn of the 2010s.”

Most economists believe the costs of rising oil prices in other parts of the economy will be minimal. However, Yardeni pointed out that because oil is used to make fertilizer, higher fuel prices could worsen food inflation.

Fed officials tend to take these disruptions into account when formulating policy. However, prolonged pressure could influence policy.

Ahead of the U.S. and Israeli attacks on Iran, futures traders had priced in the Fed’s next rate cut in June and expected at least one more rate cut before the end of the year. The first rate cut will be delayed until September, or as early as July, and the second rate cut will not occur until 2026. The implied federal funds rate by the end of the year will be 3.21%, up from the current 3.64%.

“This is probably the worst-case scenario for monetary policy, and we will probably see the term stagflation repeated again with the ‘Iran crisis,'” said Eugenio Aleman, chief economist at Raymond James. “For now, we do not expect this new scenario to cause Fed officials to change their minds on monetary policy, and will wait for more data on the risks to their dual mandates of inflation and employment.”

In fact, other economic signals outside the labor market are also quite strong.

The Atlanta Fed forecast second-quarter GDP growth of 2.1%, down sharply from the previous three quarters but still quite strong. Reports last week showed that retail sales fell 0.2% in January, but that both manufacturing and services expanded in February.

“While $100 per barrel of oil is worrying for stocks, inflation, the stock market and earnings conditions are all in a better place now than they were in March 2022, when oil prices last exceeded $100 in the aftermath of Russia’s invasion of Ukraine,” Carol Schleiff, chief market strategist at BMO Private Wealth, said in a note. “The key here is the duration of the price rise and the conflict itself. The shorter the duration, the more likely the impact will be temporary and the economy more resilient.”