①Bank of America analysts have made the latest forecast that, affected by the conflict in Iran, the global economy will face a scenario of slowing growth and rising inflation, with international oil prices remaining at a high level of around $100 per barrel for the entire year — even if the conflict ends within weeks; ②Economists at Bank of America still expect the Federal Reserve to cut interest rates by 50 basis points this year, but the timing has been postponed from summer to autumn.
Bank of America analysts have made the latest forecast that, affected by the conflict in Iran, the global economy will face a scenario of slowing growth and rising inflation, with international oil prices remaining at a high level of around $100 per barrel for the entire year — even if the conflict ends within weeks.
Claudio Irigoyen and his team at Bank of America wrote in a research report released on Wednesday: 'So far, the consequences of this conflict are expected to be mild stagflation.' Stagflation refers to an economic phenomenon characterized by rising inflation alongside slowing growth.
The bank’s economists stated that although the global economy's reliance on oil has decreased, its sensitivity to natural gas and fertilizers has significantly increased. This poses substantial risks to Europe and developing economies.
‘The war in Iran is not merely an oil shock — it is an energy shock,’ Irigoyen wrote.
Economists have lowered their forecast for U.S. economic growth by 50 basis points to 2.3% and now predict the country's overall inflation rate will reach 3.6% by 2026, up from the previous estimate of 2.8%.
Globally, economists have revised their forecast for global growth in 2026 down to 3.1% while raising their global inflation forecast to 3.3%.
Irigoyen noted that this aligns with the characteristics of a stagflationary shock, and based on the new baseline scenario, the bank predicts that oil prices will remain near $100 per barrel for the remainder of 2026.
Bank of America’s analysis assumes that the conflict will gradually subside by the end of this month.
However, Irigoyen wrote that if the conflict escalates and persists, 'a significant rise in energy prices coupled with a sharp correction in asset prices could push the global economy into a recession.'
The Federal Reserve is expected to cut interest rates by 50 basis points this year.
Economists at Bank of America still expect the Federal Reserve to cut interest rates by 50 basis points this year, but the timing of the cuts has been postponed from summer to autumn, while acknowledging that 'the risk of these cuts not materializing is high.'
Wall Street's expectations for Federal Reserve rate cuts are being pushed back. Goldman Sachs also predicts two rate cuts by the Fed this year, both occurring in the fourth quarter.
"The labor market is cooling, wage growth has fallen below levels consistent with the 2% inflation target, and long-term market inflation expectations remain stable," Goldman Sachs analysts wrote on Wednesday. "In this context, an oil shock significant enough to raise concerns about persistent inflation would likely cause severe economic damage and could trigger a recession."
Federal Reserve Chair Powell said on Monday that, against the backdrop of the energy shock triggered by the U.S.-Israel war on Iran, the Fed prefers to keep interest rates unchanged and temporarily 'ignore' the impact of this shock. These remarks eased market concerns about potential Fed rate hikes this year.
Editor/Doris