OECD Lifts Inflation Forecasts to 4.2% as Iran War Derails Fed’s Progress

The Fed thought inflation was under control, then geopolitics pulled the rug. The OECD now sees US inflation hitting 4.2% in 2026, above the Fed’s 2.7% call from just last week. The surge is being driven by the Iran war squeezing energy markets and tariffs, keeping price pressure alive at home.

• Without the Iran conflict, the OECD says 2026 growth could have been higher, but it now sits at 2.9%, with 2027 trimmed to 3%.
• It now sees G20 inflation hitting 4% this year, up from 2.8% in December, signaling a broad shock of rising prices and slowing activity.

The last mile: The Organisation for Economic Co-operation and Development says higher energy costs will keep pushing up business expenses and consumer prices, weighing on growth, even as it sees US inflation cooling to 1.6% by 2027 if the shock fades. Secretary-General Mathias Cormann warned that central banks need to stay cautious and data-driven to keep expectations anchored. With rate cuts likely off the table through 2026, inflation doesn’t seem ready to tap out.