Revolutionizing · Modernizing · Simplifying
Revolutionizing · Modernizing · Simplifying
Walk into a gas station in Denver right now and you're getting a preview of what's coming for the rest of the economy. Prices at the pump have already surged — a 15.6% spike in gas prices accounted for 40% of the increase in what American businesses paid for everything last month. And if you've been watching mortgage rates, you already know that the 30-year fixed, which briefly dipped below 6% before the war with Iran began, has climbed back to 6.57%. For Coloradans who were hoping to finally get into a home this year, that number stings.
The question everyone from your financial advisor to your contractor to your favorite brewery owner is quietly asking: Are we about to relive the 1980s?
The short answer is: maybe a version of it — but not the full nightmare. And here's why that distinction matters enormously.
This week's economic data was not kind. Tuesday's Consumer Price Index report showed consumer prices rose 0.6% in a single month, pushing the annual rate to 3.8% — the highest since May 2023. Then Wednesday's Producer Price Index report arrived and made Tuesday look almost quaint.
The PPI, which measures what businesses pay at the wholesale level before those costs trickle down to you and me, jumped 1.4% in April alone. That's twice what economists expected. On an annual basis, wholesale inflation is now running at 6%, up sharply from 4% in March. To put that in context: it's the second-largest monthly PPI gain since the index was created in 2010.
Strip out volatile food and energy — the so-called "core" measure — and prices still rose 1% for the month, with an annual rate of 5.2%. This isn't just a gas price story. It's broader than that.
President Trump, departing for China to meet President Xi Jinping, told reporters Tuesday that "our inflation is just short-term" and predicted that once the war ends, inflation will fall "probably to one and a half percent." It's an optimistic forecast — but it's running headlong into the physics of global oil markets. Even if a deal with Iran were signed today, it would still take months for oil shipments held up by the blockade of the Strait of Hormuz to reach American shores. And even then, economists expect gas prices could take months, possibly years, to fully normalize.
Wall Street took the week's data as a warning. Treasury yields surged Wednesday before pulling back slightly — the 10-year hit 4.49%, just below the closely watched 4.5% threshold. The Dow dropped 196 points. Expectations for a near-term interest rate cut were quietly shelved.
Here's where the historical analogy gets genuinely interesting — and where Coloradans old enough to remember the early 1980s might start feeling a little déjà vu.
The parallel people are drawing is this: an oil-driven inflation shock, triggered by a Middle East crisis centered on Iran and the Persian Gulf. That's not a stretch. The 1979 Iranian Revolution, followed by the 1980–88 Iran-Iraq War, threatened tanker traffic through the very same Strait of Hormuz that has been blockaded since March 4 of this year — a closure the International Energy Agency has already called the largest supply disruption in the history of the global oil market. Brent crude has surged past
Back in 1980, inflation peaked at 14.8% — nearly four times today's rate. Paul Volcker, appointed Fed chair in August 1979, responded by raising the federal funds rate from an average of 11.2% in 1979 all the way to a peak of 20% in June 1981. The prime rate hit 21.5%. What followed was brutal: two back-to-back recessions, unemployment peaking at 10.8% in 1982. Farmers drove tractors to the Fed's headquarters in protest. Car dealers mailed Volcker the keys to unsold vehicles — in coffins.
It worked. Inflation fell below 3% by 1983 and stayed tame for a generation. But the cost was enormous, and the recovery was slow and uneven — exactly the kind of scenario that would be devastating for Colorado's housing market, ski industry, energy sector, and small business economy.
This is where the optimism is actually grounded in something real, not just wishful thinking.
Today's inflation, at 3.8%, is not 1980's inflation at 14.8%. The analogy holds in mechanism — oil shock leads to inflation leads to tighter monetary policy leads to slower growth — but the scale is dramatically different. The CEPR estimates that even under a scenario where the Strait of Hormuz stays closed for a full quarter, the oil surge adds roughly 0.6 percentage points to U.S. headline inflation and 0.2 points to core inflation this year. Painful? Yes. A repeat of the Volcker era? No.
More importantly, today's Federal Reserve enters this moment with something Volcker's Fed desperately lacked in 1979: credibility. Volcker inherited a Fed that had spent a decade blinking on inflation, allowing expectations to become deeply unanchored. Today's Fed — and its incoming chair — doesn't start from that hole.
Which brings us to Kevin Warsh, who is set to take over as Fed chair. Trump has described him in characteristic fashion: "I have known Kevin for a long period of time and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is 'central casting,' and he will never let you down."
Warsh will face enormous pressure — from markets, from the White House, from a cooling labor market — to cut rates at a time when inflation is still elevated. That tension is real. But the key difference from Volcker's dilemma is that Warsh doesn't need to slam rates to 20% to prove a point. The Fed's inflation-fighting credibility, built painfully over four decades, means markets are more likely to believe that this supply shock is temporary — if it actually proves to be temporary.
That's the biggest variable of all: how fast this ends.
The most important economic forecast anyone can make right now isn't about inflation or interest rates — it's about the duration of the Strait of Hormuz blockade. Because if this war ends in the next few months, the economic scarring stays manageable. If it drags on for years, the calculus changes dramatically.
Here's the hopeful signal: the pressure to end this is intense and coming from multiple directions at once. Global oil inventories are falling at a record pace. Every major economy on Earth is feeling the pain. The IEA's report Wednesday underscored just how unsustainable the current supply disruption is. Iran rejected the latest U.S. counterproposal on May 11, which isn't great — but the fact that proposals and counterproposals are still moving suggests the diplomatic machinery hasn't fully seized up.
Economically, the pain is already creating its own pressure for resolution. Businesses that absorbed Trump's tariffs over the past year now face a second wave of cost increases from energy prices, with less capacity to absorb them. That means more pressure on consumers, which means more political pressure on Washington. The feedback loop tends to accelerate negotiations in ways that geopolitical timelines alone don't.
For Colorado specifically, the path forward looks something like this: if a deal comes together by late summer or fall, mortgage rates — already climbing back toward the uncomfortable 6.5% range — could stabilize and begin to ease again by late 2026 or early 2027. Gas prices would take longer to fully normalize, but the worst of the shock would be absorbed. Colorado's economy, more diversified than it was in the 1980s oil bust years, is better positioned to weather a short, sharp shock than a prolonged grind.
If the war drags on? Then yes, Warsh will face something closer to a Volcker-era dilemma — and Coloradans who lived through the early 1980s real estate collapse, when interest rates crushed the Front Range housing market and energy prices cratered the mountain communities that depended on cheap fuel, will have a reason to be more worried.
But we're not there yet. And the forces pushing toward resolution are real.
The 1980s hangover is possible. It isn't inevitable. And the difference between those two outcomes is being negotiated right now — somewhere between Washington, Tehran, and the Strait of Hormuz, where every passing tanker is a data point in the most consequential economic story of 2026.