US Jobless Claims Hit Highest Level Since Iran War Began

The number of Americans filing for unemployment benefits rose to 225,000 last week — the highest level since before the U.S. and Israel launched military operations against Iran in late February, according to data released Thursday by the Labor Department. The increase of 13,000 from the prior week exceeded analyst expectations of 211,000 and signals mounting economic strain as the Iran war enters its fourth month.

Context

Weekly jobless claims are considered a real-time proxy for layoffs and a key indicator of labor market health. While the 225,000 figure remains historically low, the upward trend reflects growing uncertainty as businesses grapple with surging energy costs, supply chain disruptions, and inflation pressures stemming from the conflict in the Middle East.

Economists describe the current labor market as stuck in a “low-hire, low-fire” state. This dynamic keeps the unemployment rate deceptively low at 4.3% while leaving many out-of-work Americans struggling to find new employment. The four-week moving average of claims, which smooths weekly volatility, rose by 6,500 to 214,750.

The Iran War’s Economic Toll

The economic impact of the war has been profound. The Strait of Hormuz — through which 20% of global oil passes — remains closed since Iran shut it down on March 4, triggering what the International Energy Agency called the largest oil-supply disruption in history. Oil prices have surged roughly 50% since late February, and the average U.S. gas price now stands at $4.24 per gallon, up from under $3 before the conflict began.

Consumer inflation rose 3.8% from a year ago in April — the biggest jump in three years — while wholesale prices shot up 6%, the highest in more than three years, as BBC News reported. The Federal Reserve has held interest rates steady at 3.5%-3.75%, citing economic uncertainty from the war, and some policymakers are now considering a rate hike this year to combat inflation.

A Labor Market Under Pressure

Despite historically low layoffs, hiring has been sluggish. U.S. employers added just 115,000 jobs in April — a surprisingly resilient figure given the war — but employers added fewer than 200,000 jobs in all of 2025, compared with about 1.5 million in 2024. Major companies including Verizon, UPS, Amazon, Disney, Starbucks, and Walmart have all announced layoffs in recent months.

Goldman Sachs has warned that unemployment could rise to 4.6% by the end of 2026, with a 30% probability of recession over the next 12 months, as CNBC reported. The investment bank also cut its GDP forecast for 2026 to 2%, down half a percentage point from its prior outlook.

The Fed’s Policy Dilemma

The Federal Reserve faces a difficult balancing act. Lower interest rates could boost hiring and economic growth, but they also risk stoking inflation further. Fed Chairman Jerome Powell said in March that it was “too soon” to know the full effects of the Iran war on the economy, describing the situation as having “a feel of downside risk.”

Analysts do not expect the Fed to cut rates anytime soon, and markets have pushed back expectations for any rate reduction into next year. The next Fed meeting will be closely watched for signals on how policymakers intend to navigate the competing pressures of rising prices and a cooling labor market.

What to Watch

The Labor Department is scheduled to release its May jobs report on Friday, which will provide the clearest picture yet of whether the labor market is weakening more broadly. Economists will also be monitoring whether the current ceasefire in the Iran conflict holds, as a resumption of hostilities could deepen the economic shock and push the U.S. economy closer to stagflation — a combination of high inflation and stagnant growth that the Council on Foreign Relations has warned is a growing risk.

With midterm elections approaching in November, the trajectory of the economy is likely to become an increasingly central political issue. For now, the data suggests that while the U.S. labor market remains resilient by historical standards, the cumulative pressures of war, inflation, and uncertainty are beginning to take their toll.