An ongoing conflict involving Iran could push U.S. inflation higher in the coming years, according to an analysis by Goldman Sachs. The bank projects that Brent crude oil prices, a key global benchmark, could average $105 a barrel in March and peak at $160 in a worst-case scenario, as disruptions to oil shipments through the Strait of Hormuz persist.
The economists estimate that a 10% increase in oil prices raises headline PCE inflation by 0.2 percentage points, with transportation costs bearing the brunt of the impact. Additionally, higher fertilizer prices could boost food prices by 1.5%, further straining American households.
Fed Policy in the Crosshairs
The Federal Reserve, already grappling with elevated inflation readings, faces heightened pressure as the conflict complicates its monetary policy outlook. Goldman Sachs predicts headline PCE inflation could reach 4.9% in 2026 under severe scenarios, well above the Fed's 2% target.
'Most of the impact of the war on U.S. inflation will come from higher oil prices,' the Goldman economists noted.
The bank also revised its GDP growth forecast downward, projecting 2026 growth at 2.1% under baseline assumptions, with recession risks rising by 5 percentage points to 30%. Despite these challenges, Goldman Sachs maintains its expectation of two rate cuts later this year, though policymakers remain cautious amid persistent inflationary pressures.