"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

Cailian Press April 2 News (Editor: Bian Chun) Latest forecasts from U.S. Bank analysts predict that, driven by the Iran conflict, the world will face a scenario of slower economic growth and higher inflation, with international oil prices staying at a high level of around $100 per barrel throughout the year — even if this war ends within a few weeks.

In a research report released on Wednesday, Bank of America economist Claudio Irigoyen and his team wrote: “So far, the consequences brought about by this conflict will be mild stagflation.” Stagflation refers to an economic phenomenon in which inflation rises and growth slows at the same time.

Bank of America economists said that although the global economy’s dependence on oil has decreased, sensitivity to natural gas and fertilizers has increased significantly. This poses major risks for Europe and emerging economies.

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

Economists lowered their forecast for U.S. economic growth by 50 basis points to 2.3%, and expect the country’s total inflation rate in 2026 to reach 3.6%, higher than the previously forecast 2.8%.

From a global perspective, economists cut their 2026 global growth outlook to 3.1% and raised their global inflation expectations to 3.3%.

Irigoyen pointed out that this is consistent with the characteristics of a stagflation shock, and based on the new baseline scenario, the bank expects oil prices to remain near $100 per barrel for the remainder of 2026.

Bank of America analysis assumes the war will gradually subside by the end of this month.

However, Irigoyen wrote that if the conflict escalates and continues, “a sharp surge in energy prices, coupled with a sharp pullback in asset prices, could drag the global economy into a recession.”

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

Bank of America 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 autumn, and they acknowledge that “the risk of these rate cuts not being realized is very high.”

Wall Street’s expectations for Fed rate cuts are being pushed back continuously. Goldman Sachs is also betting that the Fed will cut rates twice this year, and that both will occur 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. “Against this backdrop, an oil shock large enough to raise concerns about persistent inflation is likely to cause significant economic losses and could trigger a recession.”

On Monday, Federal Reserve Chair Powell said that, amid the energy shock stemming from the U.S.-Iran war, the Fed is inclined to keep interest rates unchanged and temporarily “ignore” the impact of this shock. These remarks eased market concerns about Fed rate hikes within the year.

(Cailian Press Bian Chun)