The Iran war and its impact on the global energy market will keep headline U.S. inflation this year well above the Federal Reserve’s projections, possibly necessitating policy action, according to a key global policy group.
In its periodic update of economic conditions, the Organization for Economic Cooperation and Development forecast all-items inflation in the U.S. to be at 4.2% for 2026.
The forecast is a sharp step up from the prior projection of 2.8%. Moreover, it is much higher than the 2.7% Fed officials estimated when they updated their own forecasts last week.
The revision is due to two primary factors: the war in the Middle East, and the ongoing impact from U.S. tariffs that, while lower than prior levels, continue to impact prices around the world.
“The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth,” the OECD.
