[U.S. Economy] Iran Conflict Impact Emerges; Wall Street Economists Downgrade U.S. Economic Forecast; Goldman Sachs: Recession Probability in the Next 12 Months Rises to 30%

As the impact of the Iran conflict gradually emerges, Wall Street economists have been lowering their growth forecasts for the U.S. economy in 2026, while raising estimates for inflation and unemployment, and increasing the probability of an economic recession. Among them, Goldman Sachs predicts a 30% chance of recession in the next 12 months.

Goldman Sachs noted in a recent report that due to the surge in oil prices, the U.S. unemployment rate is expected to rise from the current 4.4% to 4.6% by the end of 2026, and it is anticipated that the probability of the U.S. economy falling into recession in the coming year has risen to 30%.

Although the market previously expected that the tariff impacts from the Trump administration would fade over time, and that tax cuts would provide support, the sudden conflict has disrupted the balance. Several institutions predict that this year’s inflation rate will hover around 3%, making it difficult to drop back to the Federal Reserve’s target level of 2%, which will erode disposable income for residents and suppress companies’ willingness to hire.

Tax rebate bonuses offset by soaring energy costs

Previously, the market had hoped that the tax rebate bonuses driven by the Trump administration’s One Big Beautiful Bill Act would boost consumption. However, this benefit is being offset by soaring energy costs. Data from the American Automobile Association (AAA) shows that gasoline prices soared over 30% in March to $4 per gallon, marking the largest increase since Hurricane Katrina in 2005.

Morgan Stanley economists noted that preliminary data shows the scale of tax rebates has only grown by 12%, below the expected range of 15% to 25%. Economist Arunima Sinha from the firm bluntly stated, “The oil shock has basically offset all the growth momentum we were counting on.”

While the Trump administration is working to bring Brent crude oil prices back down to around $100 per barrel, analysts remind that the recovery of logistics in the Strait of Hormuz and the rebuilding of damaged facilities will take time. The conflict has triggered a shortage of fertilizers and rising diesel costs, which are spreading through the transportation chain to food and consumer goods prices.

“Even if a ceasefire is reached today, restarting production and logistics will be a long process,” said Jennifer Lee, a senior economist at BMO Capital Markets.

As spending slows, Wall Street generally expects corporate hiring to further decline. Institutions, including Citigroup, believe that if job growth continues to trend toward zero, it will, in turn, drag down consumer spending, creating a vicious cycle.

The key divergence at present lies in the direction of the Federal Reserve. Although market investors have recently bet on interest rate hikes due to concerns about inflation, most mainstream forecasting institutions still believe that considering the fragility of the job market, the Federal Reserve still has a chance to shift towards rate cuts later in 2026.

Investment in the AI sector may support the economy from shrinking

In a sluggish macro environment, continued investment in data center infrastructure has become one of the few bright spots. Benefiting from the United States’ abundant and relatively cheap natural gas resources, such investments are relatively insulated from fluctuations in imported energy prices.

This means that the U.S. economy will continue to rely heavily on optimistic expectations in the artificial intelligence (AI) sector, as well as the wealth effect brought about by asset appreciation among high-income groups. In the context of nearly stagnant job growth in 2025, it is these factors that have supported the economy from falling into contraction.

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