U.S. economic outlook tempered by Middle East conflict

S&P Global Ratings says enthusiastic growth momentum in the U.S. economy earlier this year should be tempered by the conflict in the Middle East.

“Risks to the growth outlook are squarely to the downside, primarily linked to the duration and severity of the conflict,” the firm said in a news release. “As a result, we forecast 2.2% GDP growth for the U.S. in 2026, followed by an average of 1.9% in 2027-2029. This assumes a temporary, supply-driven oil shock that recovers inside the year.”

“The recent oil shock could push headline inflation toward 4% in the near term, but we expect core inflation to move only moderately higher (3%) since our base case assumes the supply disruption will be temporary,” says S&P Global Ratings chief economist, U.S. and Canada Satyam Panday.

Labor market conditions have softened but remain broadly consistent with trend growth. “We anticipate the unemployment rate to drift higher in the later part of 2026 and 2027 as output growth slows below potential,” the release says.

The firm forecasts one rate cut of 25 basis points (bps) late this year, followed by an additional 75 bps in 2027.