Wall Street Journal survey: Iran's war hit less than expected, but inflation is more persistent

THE WALL STREET JOURNAL THIS MONTH INVESTIGATED ECONOMISTS THAT THE IMPACT OF THE WAR WITH IRAN ON THE US ECONOMY WAS MUCH LOWER THAN ECONOMISTS HAD PREVIOUSLY FEARED. BUT THE BAD NEWS IS THAT THE WAR HAS HARDENED INFLATION, ALREADY ABOVE THE FED’S 2% TARGET, AND HAS DEPRIVED THE FED OF THE SPACE TO REDUCE INTEREST RATES. THE VIEWS OF ECONOMISTS HAVE CHANGED SIGNIFICANTLY COMPARED TO THE APRIL SURVEY ABOUT A MONTH AFTER THE WAR. FORECASTS PREDICT THAT THE UNITED STATES ECONOMY WILL GROW BY 2.1 PER CENT THIS YEAR, BASED ON INFLATION-ADJUSTED GDP FOR THE FOURTH QUARTER OF 2025 TO THE FOURTH QUARTER OF 2026, UP FROM THE 2 PER CENT FORECAST IN APRIL. ECONOMISTS ARE EXPECTED TO REDUCE THE AVERAGE PROBABILITY OF RECESSION IN THE NEXT 12 MONTHS FROM 33 PER CENT IN APRIL TO 25 PER CENT, THE LOWEST LEVEL SINCE THE BEGINNING OF 2025. HOWEVER, IMPROVED GROWTH PROSPECTS HAVE BEEN ACCOMPANIED BY HEIGHTENED CONCERNS ABOUT INFLATION. ECONOMISTS EXPECT CPI TO RISE BY 3.4 PER CENT IN THE 12 MONTHS UP TO DECEMBER, UP FROM 3.2 PER CENT IN THE APRIL SURVEY. INFLATIONARY CONCERNS HAVE SURPASSED THE WAR'S BOOST TO ENERGY COSTS. ECONOMIST PREDICTS THAT FED OFFICIALS ARE WATCHING CLOSELY. PCE INFLATION, EXCLUDING FOOD AND ENERGY, WILL RISE BY 3.2 PER CENT IN 2026, UP FROM THE 2.9 PER CENT FORECAST IN APRIL。