Iran war will leave an inflation scar on the U.S. through 2027, IMF says

By Jeffry Bartash

Artificial-intelligence bust viewed as potential threat to economy

Coffee prices hit a three-year high earlier this year.

The conflict with Iran hasn't hurt the U.S. and global economies as much as expected, but it will leave a lasting legacy: another bout of excess inflation that won't disappear quickly.

So says the International Monetary Fund in its latest economic forecast.

Oil prices (CL00) (BRN00) have tumbled faster than expected following an uneasy U.S.-Iran truce, but the damage has already been done, and it will take time to undo, the IMS said.

The latest: Oil prices jump by the most in two months after Trump suggests U.S.-Iran cease-fire is over

The IMF predicts U.S. inflation won't return to, nor approach, the Federal Reserve's goal of 2% until the end of 2027 - assuming an end to the Iran war.

Yet the worst fighting in a month flared up again on Wednesday, sending stocks lower in premarket trading (ES00) and pushing up oil prices by 6%. What happens next is far from clear.

U.S. inflation was already rising even before the Iran conflict erupted at the end of February. The inflation rate had fallen to as low as 2.3% in early 2025 before re-accelerating to as high as 4.1% in May.

Economists mostly cite the residual effects of the Trump tariffs and the spike in oil prices after the war with Iran began.

The growth rate of the U.S. economy has been largely unaffected, however. The IMF predicted gross domestic product would expand at a 2.3% pace in 2026 and 2.2% in 2027, similar to its prior forecast.

The U.S. economy grew at a 2.8% rate in 2025.

The world economy is forecast to grow 3% this year, also similar to the prior IMF forecast.

"The global economy as a whole has, so far, weathered the shock from the war better than feared," the IMF said.

How come? It turns out countries don't really need as much oil and gas as they used to. "Economies are less energy intensive than they were even just a few years ago," the IMF said.

The U.S. and global economies are not free of further risk, though.

The IMF pointed to the unsettled nature of the Mideast conflict and also alluded to a possible backlash against artificial intelligence that damages stock markets.

"Policy and geopolitical uncertainty are assumed to remain elevated through 2027," the organization said. "AI hype and exuberant financial markets" could sow the seeds of instability.

-Jeffry Bartash

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07-08-26 0903ET