FORECASTS FOR EXECUTIVES AND INVESTORS
Reported from Washington, D.C. • kiplinger.com • Vol. 103, No. 32
View The Kiplinger Letter Archive • Kiplinger Personal Finance Adviser
| Washington, July 30, 2026 |
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Dear Client:
No one knows when the Iran war will end.
But some of its effects can be predicted, such as the economic effects of disrupted shipping.
Here are some impacts you can factor in to your own business or investment planning.
Fuel prices will remain relatively elevated, whether the fighting ends soon or goes on. Global petroleum stockpiles are too depleted for gas and diesel to drop sharply whenever exports resume in large quantities from the Persian Gulf region.
Gas prices will range from near $4 to near $5 per gallon…the former if the war winds down soon, the latter if it continues in the coming months. Some analysts warn that stockpiles will hit key levels by Labor Day if the gulf stays largely closed to tankers, which would spike oil prices and push gasoline to $5. If exports resume, we’ll see some relief at the pump, with regular unleaded averaging above $3.50/gallon into the early autumn…still painful for most drivers.
Diesel is sure to stay much higher than gas due to the extensive damage to refineries in Russia, normally a top diesel exporter. Ukraine’s drone strikes on Russian refineries will be a lasting issue for diesel users, whatever happens in Iran.
Other commodities likely to remain costly because of Middle East disruptions:
Aluminum. 10% of global output came from the Persian Gulf prior to the war. Now, there is a large and growing supply deficit. Users are paying a premium for metal for immediate use vs. in the futures market. Restoring Middle East output will be slow.
Plastics, namely those used in packaging and electronics. The regional loss of polyethylene exports (10 million tons) is equal to the output of 18 global-scale plants.
Fertilizers, prices of which are down from April peaks but above prewar levels.
Helium, needed for many electronics applications and medical imaging gear.
All of these are materials for which output and shipping are hard to restart. War-damaged plants take time to repair. And unlike oil, which can shift from tankers to pipelines in some cases, these commodities have no quick alternate shipping routes.
These cost pressures pose a dilemma for Federal Reserve policy choices.
The Fed normally treats energy-driven inflation as temporary and chooses not to raise interest rates, reasoning that it can’t do anything to ease supply problems.
This time may be different. Inflation is already too high and getting embedded in consumer and business psychology, especially with gas prices in more of a plateau than a brief spike this year. The more people expect high prices to continue, the more their behavior tends to reinforce those expectations. The Fed may feel it has no choice but to try to break that self-stoking cycle by raising rates. If it stands pat, bond traders may bid up long-term bond yields for fear that the Fed isn’t trying to put out the fire.
The Federal Reserve chairman doesn’t seem too worried about inflation yet.
Markets were not reassured by his confidence. After Kevin Warsh suggested that the recent rise in long-term Treasury yields will help curb inflation on its own, stocks and long-term T-bonds sold off. Warsh sounds determined to control inflation, but he risks the Fed’s credibility to do so if he stands pat and prices keep rising fast. Three of his colleagues voted to raise the Fed’s rate this week, an unusual dissension for an institution that likes to show a united front. Expect financial markets to be edgy as they wait to see how Warsh navigates this early test of his ability to lead the Fed.
Despite surging e-commerce, new retail shopping districts are the place to be.
At night, anyway. Foot traffic at new or overhauled retail corridors is up 2-4% after 8 p.m. this year. This probably reflects the fact that a lot of traditional spots for nightlife, such as bars and movie theaters, have closed or cut back operating hours, but some consumers still want to be “out” somewhere. They are increasingly gravitating to pedestrian-friendly retail zones with lots of restaurants and outdoor gathering spots.
Private credit is turning into a multi-trillion-dollar industry. Total funds backing private loans are expected to double by 2030, passing $4.5 trillion, as nonbank lenders expand beyond basic corporate loans to fund unconventional assets like aircraft, consumer debt and data centers. Large institutional investors continue to pour cash into private credit funds to earn higher returns. However, some funds marketed to individual investors are suffering a surge in cash withdrawal requests.
Despite being pitched as low-risk, the sector is anything but a safe bet. Loan defaults are closely linked to interest rates, economic growth and unemployment. Moody’s Analytics says that private credit default rates consistently outpace those of publicly traded junk bonds. Private lenders cater to smaller, higher-risk companies that face greater financial pressure when interest rates stay elevated…such as now.
High interest charges do give lenders a safety cushion, though, letting them absorb sizable losses if the economy weakens and pushes up borrowers’ default rate.
Expect more states to loosen their building codes in an effort to lower costs.
Among the changes: Letting low-rise apartment buildings have one stairway, which could make room for more or bigger units. Between 2022 and 2025, 19 states plus Washington, D.C., introduced bills to study or allow single-stairway buildings, with seven of them passing last year alone. Idaho, for instance, will allow localities to permit certain apartment complexes to use one stairway. The new rules will apply to buildings up to six stories without an occupiable roof, up to five stories with one. Similar laws have also passed in Colo. and Texas. Lawmakers in Ill., N.Y. and R.I. have also considered such legislation, which may come up again in future sessions.
Single-stairway designs can cost anywhere from 6% to 13% less to construct.
Critics continue to cite safety concerns, and some states have backtracked. Case in point, Conn. repealed its single-stairway law after objections from fire officials.
Weak domestic demand remains a persistent drag on China’s recovery. GDP growth is slowing as a long-standing property downturn deepens, marked by an 18% plunge in property construction. Beijing has tried to compensate by subsidizing retail spending, but household consumption hasn’t responded. Spending growth continues to lag income gains as cautious consumers hold back.
Mounting geopolitical and trade frictions bode ill for China’s exports. They surged 27.0% year-on-year in June, powered by the global AI boom’s need for Chinese chips, plus strong automobile sales. Yet, China’s massive trade surplus has intensified international scrutiny of its trade practices. In early June, the U.S. implemented new Section 301 tariffs, raising China’s effective tariff rate to 23.4%. Trade tensions with the European Union have also flared up over ballooning exports, leading Beijing to ax diplomatic talks and dimming its hopes of selling more in the EU.
A recent cyberattack powered by artificial intelligence is a game changer.
OpenAI’s AI system broke guardrails during testing and launched an attack against another company, Hugging Face, an online platform for AI developers. OpenAI’s autonomous AI system was isolated from the Internet, but broke free using state-of-the-art techniques and lots of computing power. It exploited bugs in Hugging Face’s system to access data and credentials, gain secret information and cheat on its evaluation. OpenAI is continuing to investigate the incident and adding stricter controls. Hugging Face found the breach via AI security tools.
Many security experts had predicted this type of AI cyberattack happening.
But it’s still a sobering moment for cybersecurity pros and policymakers, providing a clear example of how powerful AI can go off course in dangerous ways, even when following careful instructions. Organizations need to be prepared with defensive tools to spot, contain and remediate an onslaught of AI attacks.
While OpenAI and other leading AI companies implement guardrails…
Powerful AI that does not have meaningful safeguards will be available, including Chinese tools from firms aiming to compete globally with American ones.
A promising use of artificial intelligence for lawmakers: Cutting red tape.
AI can reveal and help clean up all sorts of outdated city and state rules, according to researchers at Stanford Univ., who are collaborating with local officials to find and cut obsolete processes. An AI tool they built examined 500 million words of state laws to find common patterns, outdated requirements and better processes. One early example: San Francisco using the tool last year to streamline city rules. At the very least, the tool can help states better understand the cost and benefits of rules on the books, presenting findings in easier-to-understand data and text.
The tool can provide improved model legislation for states to follow, too.
Will localities really take action? There’s a good chance, as areas grapple with trends such as high housing costs. AI will also give businesses a new way to criticize unnecessary red tape and pose data-driven suggestions for reform.
Keep an eye on the Ratepayer Protection Act advancing through Congress.
The House bill calls for states to consider adopting a federal standard directing data centers, which are rapidly expanding across the country to power AI and cloud computing, to pay the full cost of new power or power lines stemming from their electricity use. However, it doesn’t force them to adopt such standards. A similar bill just introduced in the Senate is expected to attract strong backing.
It’s among the first of many data center bills to gain traction on Capitol Hill.
The White House is also asking tech companies to make voluntary pledges to pay for increased power costs in the places where they build data centers. Alphabet, Amazon, Meta, Microsoft, OpenAI and Oracle are among those that have signed on, along with several utilities who say that they won’t shift more costs onto consumers.
Democrats have a new complication in their bid to retake the Senate…
A threat by Sen. John Fetterman (PA) to leave the party if the Democrats adopt what he calls an “anti-Israel” platform, including opposition to military aid.
He hasn’t said whether he would become an independent or a Republican if he winds up switching before his term ends in 2029. Notably, other Democrats who have done so, including former Sens. Kyrsten Sinema (AZ) and Joe Manchin (WV), continued to caucus with the Democrats even after dropping the official party label.
The recent Gaza war created a huge split between Democrats on Israel…
And the divide is widening. Most Democrats and Dem-leaning independents view Israel unfavorably, and roughly half of House Democrats voted this month to strip $3.3 billion in aid from Israel, a sharp break from the party’s longtime stance.
Most states enter the 2027 fiscal year facing significant financial pressures that stem from modest revenue growth, rising costs and major changes to federal policy that have slowed or altered the flow of money to state governments.
23 states expect their general-fund spending to either decline or stay flat, up from 11 in fiscal year 2026. Proposed general-fund spending shows a decline of 1.4%, to $1.36 trillion, compared with an increase of nearly 8% in FY26.
Governments are increasingly looking for ways to cut back. 14 states plan to eliminate vacant positions. Eight want to change retirement benefits to slash costs. Four have proposed hiring freezes. And four will cut jobs and state employee benefits.
Several states are planning to pad their rainy-day funds, with 25 of them projecting growth in government reserves, as inflation erodes their spending power. Per one estimate, the median state could fund government operations on reserve funds for nearly 48 days in FY25, down from an all-time high of 54.5 days in FY24.
The U.S. Postal Service is pushing to improve end-to-end shipping visibility, hoping to boost the reliability of the agency’s service and to better compete with private-sector rivals such as UPS and FedEx. The goal is for USPS to avoid cases like a wedding invitation arriving after the date of the ceremony, allowing managers to see when and where mail has been held up and move quickly to address the issue.
The agency is aiming for a near-real-time view of every single shipment and has invested in numerous sending and scanning technologies. Bluetooth devices improve the visibility of parcels in containers. The agency is also employing them in test packages to identify bottlenecks for high-value shippers. Bidirectional cameras help USPS track mail items through a postal facility. At the same time, the agency is training its employees to improve compliance with new scanning requirements.
Still, the Postal Service’s ambitions face numerous limitations. The agency faces an ongoing cash crunch, stemming from a decline in mail volume since 2006, along with personnel costs, pension obligations and regulatory pricing restrictions.
The U.S. passport is steadily losing its global standing, falling to 10th place (tied with Iceland) in the annual Henley Passport Index, which ranks them by the number of destinations a country’s passport holders can enter without a visa.
U.S. passport holders can visit 180 nations without a prior visa, two fewer than last year. As recently as 2014, the U.S. passport ranked No. 1 in the world.
36 countries offer its citizens more visa-free destinations than the U.S., with multiple countries tied for many spots. Among those ahead of the U.S. are Singapore, Canada, France, Germany, Luxembourg, Latvia, Malta and Malaysia.
The U.S. could slip further in the rankings, as more countries respond to tensions with Washington by requiring visas for Americans. Currently, the U.S. allows visa-free entry from just 46 countries, ranking 73rd globally in openness.
If you’re worried about getting in a car crash, beware the state of Mass.
Boston is the riskiest American city for drivers, who average 3.76 years between collisions, per insurer Allstate. Two other Bay State cities are in the top five... Worcester and Springfield...as are Washington, D.C., and Baltimore. By contrast, drivers in Brownsville, Texas, the safest American city, go almost 15 years between collisions.
Yours very truly,
July 30, 2026
THE KIPLINGER WASHINGTON EDITORS
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