[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 becomes apparent, Wall Street economists have lowered their growth forecasts for the U.S. economy in 2026, while raising estimates for inflation and unemployment, and increasing the probability of a recession. Among them, Goldman Sachs predicts that the likelihood of recession will rise to 30% in the next 12 months.

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

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

Tax Rebate Windfall Offset by Soaring Energy Costs

Previously, the market had hoped that the tax rebate windfall brought about by the Trump-promoted One Big Beautiful Bill Act would boost consumption. However, this positive effect is being offset by rapidly rising energy costs. Data from the American Automobile Association (AAA) shows that gasoline prices surged over 30% in March to $4 per gallon, marking the largest increase since Hurricane Katrina in 2005.

Morgan Stanley economists pointed out that preliminary data shows the tax rebate scale has only increased by 12%, below the expected 15% to 25%. Economist Arunima Sinha stated bluntly, “The oil shock has essentially offset all the growth momentum we were hoping for.”

Although the Trump administration is striving to bring Brent crude oil prices back down to around $100 per barrel, analysts warn that restoring logistics in the Strait of Hormuz and rebuilding damaged facilities will take time. The conflict has triggered shortages 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 lengthy process,” said Jennifer Lee, senior economist at BMO Capital Markets.

With spending slowing down, Wall Street generally expects corporate hiring to contract further. 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 current key divergence lies in the Federal Reserve’s actions. Although market investors have recently bet on interest rate hikes due to inflation concerns, most mainstream forecasting institutions still believe that considering the fragility of the job market, the Federal Reserve still has a chance to pivot to rate cuts later in 2026.

Investment in AI Sector May Support Economy from Contraction

In the sluggish macro environment, continued investment in data center infrastructure has become one of the few bright spots. Benefiting from the U.S.'s abundant and relatively cheap natural gas resources, such investments are relatively less affected by 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 by asset appreciation among high-income groups. Against the backdrop of nearly stagnant job growth in 2025, these factors are supporting the economy from falling into contraction.