Wall Street Journal survey: Iran war impact lower than expected, but inflation remains more stubborn

Golden Ten Data reported on July 12 that The Wall Street Journal's survey of economists this month shows that the impact of the war with Iran on the US economy is far lower than economists had previously feared. However, the bad news is that this war has made inflation—which was already above the Federal Reserve's 2% target—even more persistent, and left the Federal Reserve with little room to cut interest rates. Compared with the April survey, which was conducted about a month after the outbreak of the conflict, economists’ views have changed significantly. Forecasters now expect that, after adjusting for inflation, the US gross domestic product will grow by 2.1% this year from the fourth quarter of 2025 to the fourth quarter of 2026, up from a 2% estimate in April. The average probability of a recession within the next 12 months expected by economists has fallen from 33% in April to 25%, the lowest since early 2025. However, while the growth outlook has improved, concerns about inflation have intensified. Economists expect the Consumer Price Index (CPI) to rise by 3.4% in the 12 months to December, up from 3.2% in the April survey. Inflation concerns have now surpassed the boost to energy costs brought by the war. Economists forecast that the core PCE inflation (excluding food and energy), which Federal Reserve officials closely track, will rise by 3.2% in 2026, higher than the 2.9% predicted in April.