Bank of America analysts have a grim warning for the global economy. Even if the war in Iran ends in the next few weeks, they expect the world to deal with slower growth and higher prices for the rest of the year. The bank’s experts call this “mild stagflation,” a messy situation where inflation stays high while the economy starts to stall out.
The researchers believe oil will likely sit around $100 per barrel for all of 2026. However, they pointed out that this isn’t just about the price at the gas pump. They described the current crisis as a broad “energy shock” because it also affects natural gas and fertilizers. This makes the situation particularly dangerous for Europe and developing nations that rely on those supplies to grow food and heat homes.
Because of these rising costs, Bank of America cut its forecast for U.S. economic growth to 2.3%. At the same time, they expect inflation to jump to 3.6%, which is much higher than their original 2.8% estimate. On a global scale, the outlook is just as shaky, with analysts lowering growth expectations and raising their predictions for how much goods will cost.
The bank based these numbers on the hope that the war winds down by the end of this month. If the fighting actually gets worse or drags on longer, the analysts warned that a global recession could be next. A major drop in the stock market combined with even higher energy prices would likely push the world economy over the edge.
This uncertainty is also changing when the Federal Reserve might lower interest rates. Many people hoped for rate cuts this summer, but experts now think the fall is more likely. Goldman Sachs analysts agreed, predicting that any cuts probably won’t happen until the end of the year. There is even a chance that the Fed won’t cut rates at all if inflation stays too high.
For now, Fed Chair Jerome Powell seems to be staying calm. He recently said that the public still has faith in the economy and that the central bank usually tries to “look through” temporary supply shocks like this one. His comments helped settle some nerves on Wall Street, but many investors remain worried that the high cost of energy will eventually do too much damage to ignore.
