Iran War Driving Up U.S. Borrowing Costs and Inflation Concerns

The Iran war is sending longer-term borrowing costs surging amid prospects for higher inflation, fewer Federal Reserve rate cuts and more federal borrowing.

Objective Facts

The 10-year Treasury note yielded 4.45% at around 10:30am ET, up half a percentage point from 3.96% just before the U.S. and Israeli attack on Iran. This week, three auctions of government debt showed weak demand for the securities, with two-, five- and seven-year Treasury notes commanding lower prices — and thus higher borrowing costs for the government — than anticipated. Only about a fifth of the rise in the 10-year yield this month is accounted for by investors anticipating higher inflation. The rest is explained by the "term premium" — the compensation that investors demand for taking the risk of tying up their money for years. That points to concern over the new volatility in Treasury securities, expectations of more federal borrowing to fund the war effort and greater uncertainty about what the future looks like.

Left-Leaning Perspective

Across Washington, most Democrats remain adamantly opposed to Trump's war and even centrist, pro-Israel Democrats have told CNN they remain skeptical of funding the war under current conditions. House Democratic Caucus Chair Pete Aguilar stated: "He's sending billions of our tax dollars to the Middle East for another war while he's kicking people off of healthcare and … eliminating nutrition programs." "Waging war on a regime while simultaneously enabling it to increase oil profits by lifting sanctions makes zero sense and reaches new levels of incoherence," said a joint Thursday statement by Democratic Senate Minority Leader Chuck Schumer and the Senate Democratic leaders of key national security-related committees. Several Democrats immediately rejected the Pentagon's request, which they pointed to as a sign Trump is digging in for a longer war — even as he initially asserted it would only last four to five weeks. "At the height of combat the Iraq War cost around $140 Billion per year. If the Pentagon is asking for $200 billion they are asking for a long war. The answer is a simple no," Sen. Ruben Gallego (D-Ariz.), an Iraq War veteran, said Thursday night on the social platform X. "Because there was no plan going in, I think there will be lots of things that are unforeseen consequences of this," Sen. Martin Heinrich, D-N.M, the top Democrat on the Senate Energy and Natural Resources Committee, said in an interview with CNBC. "I mean you saw how much gas has gone up in a day, oil futures have gone up, there are going to be a lot of knock-on effects." On Thursday, Democratic Senator Catherine Cortez Masto introduced a bill that would take $1 billion of the Board of Peace's funding and redirect it to the Low-Income Home Energy Assistance Program, amid skyrocketing gas prices from Trump's war in Iran. "Instead of giving President Trump a $1 billion blank check to fund a 'Board of Peace' that has offered no transparency about how it is investing its money, let's focus on helping American families afford their monthly power bill," Cortez Masto said in a statement. Progressive outlets frame the war as reckless spending that abandons domestic priorities while benefiting only oil companies and military contractors.

Right-Leaning Perspective

Cracks are emerging among congressional Republicans over the Iran war with key lawmakers skeptical about spending hundreds of billions of dollars to prolong the conflict and several refusing to support any money without a clear White House strategy. Rep. Chip Roy defended Trump's position on the war, but said he would need to know exactly how any supplemental funds would be distributed. "I like to be consistent. I was consistent about Ukraine. I'm going to be consistent on Iran," he told Fox News. "I want to make sure I know the game plan. We want to know what the result is going to be." Roy emphasized that he trusts the President and Hegseth to defend national interests, but insisted on knowing more about the financial specifics, and whether it might involve Americans in a long-standing conflict. GOP leaders do not believe they have the votes to fund the war even in their own party without far more detailed plans from the White House, according to multiple people involved in those preliminary discussions. Trump is not helping Republican jitters by his failure to explain his war aims in Iran. House Armed Services Chairman Mike Rogers on Wednesday described "frustration on both sides of the aisle in the last few briefings" from top officials. He said members lacked adequate information about plans for ground troops, the end goal or the expected price tag of the war. Right-leaning voices that have addressed the economic costs focus on fiscal accountability rather than opposing the war itself. The Organization for Economic Cooperation and Development predicted Thursday that the war would send US inflation above 4.0% this year, up from the 2.8% it forecast in December. So much for Trump's claim to have solved the affordability crisis. Republican fiscal hawks want specifics on spending before authorizing funds, but generally frame their concerns as procedural rather than opposing the mission fundamentally.

Deep Dive

The 2026 Iran conflict began on 28 February 2026, with joint US-Israeli airstrikes targeting Iranian leadership and military infrastructure, including a decapitation strike that assassinated Supreme Leader Ali Khamenei. Following the closure of the Strait of Hormuz on 4 March 2026, oil and LNG exports were stranded, causing Brent Crude to surge past $120 per barrel and forcing QatarEnergy to declare force majeure on all exports. Goldman Sachs analysts this week estimated that higher global energy prices would boost U.S. inflation by 0.2 percentage points to 3.1% by the end of the year, putting a drag on consumer spending and economic growth. The investment bank increased the probability of a recession over the next year to 30%. The war has created a genuine energy shock that is reshaping financial markets and economic forecasts. Both sides correctly identify that the pricing of 10-year inflation-protected Treasuries implies inflation of 2.34% over the next decade, up only slightly from 2.25% pre-war. In other words, only about a fifth of the rise in the 10-year yield this month is accounted for by investors anticipating higher inflation. This means markets are pricing in not just inflation but deep uncertainty and risk. What Democrats miss is that concern over the new volatility in Treasury securities, expectations of more federal borrowing to fund the war effort and greater uncertainty about what the future looks like are market-driven factors Trump cannot easily control. What Republicans minimize is that The Organization for Economic Cooperation and Development predicted Thursday that the war would send US inflation above 4.0% this year, up from the 2.8% it forecast in December. So much for Trump's claim to have solved the affordability crisis. The affordability argument—the president's core promise to voters—is now materially undermined by his own military decision. Capital Alpha Partners analyst Byron Callan said in a note on Thursday: "The Middle East war now appears to be broadening and deepening." "We have 25% confidence that it's concluded by the end of May, 45% that it's settled in the fall of 2026, and 35% that it extends into 2027." The critical unknown is duration. If the war ends within weeks, the impact on GDP (Gross Domestic Product), inflation and monetary policy will be limited outside the Gulf economies. But if it extends, GDP growth in the euro-zone is likely to slow to just 0.5 percent y/y (year on year) in the second half of the year while economic growth in China is likely to fall below 3 percent y/y (year on year). The next critical event is whether Trump can negotiate a settlement by mid-April when he has signaled he will resume strikes on Iranian energy infrastructure, or whether further escalation pushes yields above the 4.5% "line in the sand" that analysts say could force policy intervention.

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Iran War Driving Up U.S. Borrowing Costs and Inflation Concerns

The Iran war is sending longer-term borrowing costs surging amid prospects for higher inflation, fewer Federal Reserve rate cuts and more federal borrowing.

Mar 27, 2026· Updated Mar 28, 2026
What's Going On

The 10-year Treasury note yielded 4.45% at around 10:30am ET, up half a percentage point from 3.96% just before the U.S. and Israeli attack on Iran. This week, three auctions of government debt showed weak demand for the securities, with two-, five- and seven-year Treasury notes commanding lower prices — and thus higher borrowing costs for the government — than anticipated. Only about a fifth of the rise in the 10-year yield this month is accounted for by investors anticipating higher inflation. The rest is explained by the "term premium" — the compensation that investors demand for taking the risk of tying up their money for years. That points to concern over the new volatility in Treasury securities, expectations of more federal borrowing to fund the war effort and greater uncertainty about what the future looks like.

Left says: Democrats see the war as evidence of what they have been telling voters about Trump all along: he does not care about affordability. "We have a president who has campaigned on ending forever wars, and he has jumped into war without justification or explanation to the American people," said Rep. Suzan DelBene, D-Wash., chair of the Democratic Congressional Campaign Committee. "So this has been broken promise after broken promise. This has been at the expense of the needs of everyday Americans."
Right says: GOP leaders have maintained that it's a short-term war, with Speaker Mike Johnson insisting on Thursday that the US mission will end "very soon," while acknowledging that the closure of the Strait of Hormuz "is dragging it out a little bit." Hegseth said Thursday that the forthcoming request to Congress will ensure the U.S. military is funded "for what's been done, for what we may have to do in the future [and to] ensure that our ammunition is — everything's refilled, and not just refilled, but above and beyond." The U.S. has so far struck more than 7,000 targets across Iran, the secretary said, while signaling that the operations would only increase in the days to come.
✓ Common Ground
Across Washington, most Democrats remain adamantly opposed to Trump's war, and cracks are emerging among congressional Republicans over the Iran war with key lawmakers skeptical about spending hundreds of billions of dollars to prolong the conflict.
Members across both parties lack adequate information about plans for ground troops, the end goal or the expected price tag of the war.
The war in Iran is unpopular. Democrats and some Republicans agree that public support is lacking for extended military involvement.
Polling shows most Americans believe the U.S. military action against Iran has gone too far and voters are more and more worried about Trump's failure to address affordability issues. That, coupled with a weakening labor market and worries about renewed inflation, means Republicans could face a string of glaring liabilities as they try to maintain control of both the House and Senate.
Objective Deep Dive

The 2026 Iran conflict began on 28 February 2026, with joint US-Israeli airstrikes targeting Iranian leadership and military infrastructure, including a decapitation strike that assassinated Supreme Leader Ali Khamenei. Following the closure of the Strait of Hormuz on 4 March 2026, oil and LNG exports were stranded, causing Brent Crude to surge past $120 per barrel and forcing QatarEnergy to declare force majeure on all exports. Goldman Sachs analysts this week estimated that higher global energy prices would boost U.S. inflation by 0.2 percentage points to 3.1% by the end of the year, putting a drag on consumer spending and economic growth. The investment bank increased the probability of a recession over the next year to 30%. The war has created a genuine energy shock that is reshaping financial markets and economic forecasts.

Both sides correctly identify that the pricing of 10-year inflation-protected Treasuries implies inflation of 2.34% over the next decade, up only slightly from 2.25% pre-war. In other words, only about a fifth of the rise in the 10-year yield this month is accounted for by investors anticipating higher inflation. This means markets are pricing in not just inflation but deep uncertainty and risk. What Democrats miss is that concern over the new volatility in Treasury securities, expectations of more federal borrowing to fund the war effort and greater uncertainty about what the future looks like are market-driven factors Trump cannot easily control. What Republicans minimize is that The Organization for Economic Cooperation and Development predicted Thursday that the war would send US inflation above 4.0% this year, up from the 2.8% it forecast in December. So much for Trump's claim to have solved the affordability crisis. The affordability argument—the president's core promise to voters—is now materially undermined by his own military decision.

Capital Alpha Partners analyst Byron Callan said in a note on Thursday: "The Middle East war now appears to be broadening and deepening." "We have 25% confidence that it's concluded by the end of May, 45% that it's settled in the fall of 2026, and 35% that it extends into 2027." The critical unknown is duration. If the war ends within weeks, the impact on GDP (Gross Domestic Product), inflation and monetary policy will be limited outside the Gulf economies. But if it extends, GDP growth in the euro-zone is likely to slow to just 0.5 percent y/y (year on year) in the second half of the year while economic growth in China is likely to fall below 3 percent y/y (year on year). The next critical event is whether Trump can negotiate a settlement by mid-April when he has signaled he will resume strikes on Iranian energy infrastructure, or whether further escalation pushes yields above the 4.5% "line in the sand" that analysts say could force policy intervention.

◈ Tone Comparison

Democrats use morally charged language—"reckless," "broken promise," "incoherence"—to cast Trump as fundamentally betraying his values and harming everyday Americans. Republicans adopt a more procedural tone, focusing on "game plan," "clarity," and "offsets," positioning their concerns as managerial rather than principled opposition. Left outlets emphasize human cost and moral choice; right outlets emphasize strategic necessity and operational detail.

✕ Key Disagreements
Root cause and responsibility for economic harm
Left: Democrats argue Trump has "jumped into war without justification" and that "he does not care about affordability." They blame Trump personally for launching an unjustified conflict that harms ordinary Americans.
Right: Rising Treasury yields complicate the Trump administration's push for lower borrowing costs. A stronger dollar impedes visions of trading partners scooping up cheaper American goods. And lower stocks conflict with the president's love of record highs. Republicans acknowledge the problem but frame it as an unfortunate external market consequence rather than Trump's choice to wage war.
Duration and end-state clarity
Left: Sen. Andy Kim, D-N.J., a national security advisor in the Obama White House, stated: "This administration doesn't seem to think about this at all" and that "The intelligence community has done a whole range of assessments that very much keep me up at night, and the fact that this White House, I assume, read the same things I read and still went through with this, I just find that to be absolutely reckless."
Right: GOP leaders have maintained that it's a short-term war, with Speaker Mike Johnson insisting the US mission will end "very soon," while acknowledging that the closure of the Strait of Hormuz "is dragging it out a little bit." Republicans believe the war will conclude quickly despite complications.
Treatment of military spending versus domestic needs
Left: Democrats argue: "He's sending billions of our tax dollars to the Middle East for another war while he's kicking people off of healthcare and … eliminating nutrition programs." The war represents misplaced priorities.
Right: Secretary Hegseth frames military funding as essential: "ensure that our ammunition is — everything's refilled, and not just refilled, but above and beyond. The U.S. has so far struck more than 7,000 targets across Iran." National defense is the priority that justifies spending.
Promise-keeping and consistency
Left: "We have a president who has campaigned on ending forever wars, and he has jumped into war without justification or explanation to the American people. So this has been broken promise after broken promise. This has been at the expense of the needs of everyday Americans."
Right: Trump's power has long been based on relentless control of the Republican Party. Recent polling shows the president's decision to go back on a promise not to wage new foreign wars hasn't scared off his most loyal voters. Republicans view the war as a necessary response to external threats, not a broken promise.