"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.

Liaison Media (Apr 2) (Edited by Bian Chun) A new prediction from Bank of America’s analysts says that driven by the Iran conflict, the world will face a scenario of slowing economic growth and rising inflation, with international oil prices staying at a high level of around $100 per barrel throughout the year — even if this conflict ends within a few weeks.

In a research note released on Wednesday, Bank of America economist Claudio Irigoyen and his team wrote: “At this point, the consequence brought about by this conflict will be mild stagflation.” Stagflation refers to an economic phenomenon in which inflation rises while growth slows.

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

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

The economists cut their forecast for the U.S. economic growth rate 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, the economists lowered their 2026 global growth expectation to 3.1% and raised the global inflation forecast to 3.3%.

Irigoyen said this is consistent with the characteristics of a stagflation shock. Based on the new baseline scenario, the bank predicts that oil prices will stay near $100 per barrel for the remainder of 2026.

Bank of America’s analysis assumes that the war will gradually subside before the end of this month.

However, Irigoyen wrote that if the conflict escalates and continues, “a significant surge in energy prices, combined with a significant pullback in asset prices, could drag the global economy into a recessionary situation.”

The Fed is expected to cut rates by 50 basis points this year

Bank of America economists still expect the Fed to cut rates by 50 basis points this year, but the timing of the cuts 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 further and further. Goldman Sachs is also betting that the Fed will cut rates twice this year, with both cuts occurring in the fourth quarter.

“The labor market is cooling, wage growth has fallen below the level consistent with a 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 would very likely result in significant economic losses and may trigger a recession.”

On Monday, Fed Chair Jerome Powell said that in the context of the energy shock triggered by the Iran-U.S. conflict, 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 later this year.