"Stagflation" is coming! Bank of America: The Federal Reserve is expected to cut interest rates by 50 basis points this year, and oil prices will stay around $100 throughout the year

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Source: Cailian Press

Cailian Press, April 2 — (Editor: Bian Chun) Latest forecast by U.S. bank analysts predicts that due to the Iran conflict, the global economy will face a slowdown in growth and rising inflation, with international oil prices remaining around $100 per barrel throughout the year—even if the conflict ends within a few weeks.

U.S. bank economist Claudio Irigoyen and his team wrote in a report released Wednesday: “So far, the consequences of this conflict will be mild stagflation.” Stagflation refers to an economic phenomenon where inflation rises while growth slows.

U.S. bank economists stated that although the global economy’s dependence on oil has decreased, sensitivity to natural gas and fertilizers has significantly increased. This poses major risks to Europe and developing economies.

“The Iran war is not just a simple oil shock—it’s an energy shock,” Irigoyen wrote.

Economists have lowered the U.S. economic growth forecast by 50 basis points to 2.3%, and expect the country’s overall inflation rate to reach 3.6% by 2026, up from the previous forecast of 2.8%.

Globally, economists have revised down the 2026 global growth outlook to 3.1% and raised the global inflation forecast to 3.3%.

Irigoyen pointed out that this aligns with the characteristics of stagflation, and based on the new baseline scenario, the bank predicts oil prices will remain around $100 per barrel for the rest of 2026.

U.S. bank analysis assumes the war will gradually subside by the end of this month.

However, Irigoyen wrote that if the conflict escalates and persists, “a sharp rise in energy prices combined with a significant correction in asset prices could push the global economy into recession.”

The Federal Reserve is expected to cut interest rates by 50 basis points this year

U.S. bank economists still expect the Federal Reserve to cut rates by 50 basis points this year, but the timing has been pushed back from summer to fall, and they admit that “the risk of these rate cuts not materializing is very high.”

Wall Street’s expectations for Fed rate cuts are continuously being delayed. Goldman Sachs also bets that the Fed will cut rates twice this year, both in the fourth quarter.

“The labor market is cooling, wage growth has fallen below the level consistent with the 2% inflation target, and market long-term inflation expectations remain stable,” Goldman Sachs analysts wrote on Wednesday. “In this context, an oil shock sufficient to raise concerns about persistent inflation could cause severe economic damage and potentially trigger a recession.”

Federal Reserve Chair Powell stated on Monday that, in the context of the energy shock caused by the U.S.-Iran conflict, the Fed tends to keep interest rates unchanged and temporarily “ignore” the impact of this shock. This statement eased market concerns about rate hikes by the Fed this year.

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Editor: Zhao Siyuan