Dive Brief:

• The Iran war and other geopolitical conflicts will likely slow economic growth and fuel inflation this year and in 2027, according to results of a survey of economists by the National Association for Business Economics released Thursday.
• In late March, as the war persisted into a fourth week, survey respondents scaled back their prior forecasts for reductions in borrowing costs this year, the NABE said. Thirty-three percent expect that the Federal Reserve will not trim the main interest rate this year, whereas in early March their median expectation was for two quarter-point cuts in 2026, the NABE said.
• “The majority of respondents now expects recent geopolitical developments to reduce 2026 gross domestic product growth and push headline and core inflation higher this year and into 2027,” EY-Parthenon Chief Economist Gregory Daco said in a statement. “The outlook for interest rates has fractured in turn, with panelists’ views now nearly evenly split between no cuts, one cut and two cuts this year” by the Fed, according to Daco, NABE president.

Dive Insight:

Since the start of the Iran war on Feb. 28, several Fed officials have voiced concern that an inflationary surge in oil prices could slow economic growth and compel the central bank to favor one of their dual congressional mandates at the expense of the other.

Policymakers may have to choose to either raise rates to fight inflation at the risk of dampening employment and economic growth, or trim rates to reduce unemployment at the risk of stoking price pressures.

“On the one hand, if the [Iran] conflict is resolved fairly quickly and we can reopen the Strait of Hormuz, then it's possible that the effects on both economic activity and the labor market might be pretty moderate,” Dallas Fed President Lorie Logan said Thursday.

“On the other hand, if the conflict continues and it takes quite some time to reopen the strait, then there could be more adverse impacts, and those adverse impacts could be moving in opposite directions with respect to our dual mandate, and cause a lot of tension between our responsibilities,” she said.

Policymakers, while noting the uncertain economic outlook, chose on March 18 to hold the federal funds rate at a range between 3.5% and 3.75% for the second straight meeting.

“I think policy is positioned to adjust to the data as it's coming in, and we're prepared to make adjustments to the policy path as appropriate,” Logan said.

Respondents to the NABE survey expect, in a median forecast, that the central bank will trim the federal funds rate by a quarter percentage point this year, the NABE said.

Roughly half of respondents expect the cut to occur this quarter while the other half forecast the reduction will occur during the fourth quarter, according to the NABE.

A “broadening of geopolitical conflicts” poses the biggest risk to the U.S. economy, exceeding inflation, tariffs, financial crises and other hazards, according to 69% of survey respondents. In a November survey, only 8% of respondents identified global conflicts as the top risk, the NABE said.

Still, economists see smaller odds of a recession occurring anytime soon, with more than half (56%) predicting that the economy will continue to grow through 2027 or beyond, the NABE said.

Only 5% of respondents forecast a recession this year, compared with 18% who predicted in the November survey that the economy would start to contract during the first half of 2026, the NABE said.