Economists Raise U.S. Inflation Forecasts Amid War-Driven Price Surge

Huo Xing Finance reports that on May 22, as price shocks triggered by the war in Iran began spreading from energy costs to broader sectors, economists raised their forecasts for U.S. inflation and pushed back the timeline for the Fed’s next rate cut. They expect the core PCE index to rise more than previously anticipated, with both inflation measures remaining above 3% by year-end. Economists are now evenly split on whether the Fed will cut rates in December, whereas earlier surveys had predicted the next cut would occur in October. Luke Tilley, Chief Economist at Wilmington Trust Corp., said this feeling of déjà vu is back: the Fed and markets are concerned that surging energy prices will spark inflation, just as they feared tariffs would last year. Given that consumer spending is already weak, households are more likely to offset higher fuel costs by cutting back on other expenditures. The survey shows economists still expect U.S. consumer spending and GDP to grow by approximately 2% this year, roughly in line with prior forecasts. The probability of a recession within the next 12 months has declined to 25%. Additionally, economists slightly raised their forecast for U.S. job growth this year but still anticipate the unemployment rate to peak at 4.5% in the third quarter. (Jinshi)