A conflict with Iran will leave an “inflationary footprint” on the U.S. economy through the end of 2027, according to the IMF

The conflict with Iran has not hit the U.S. and global economies as hard as expected, but it will leave an inflationary mark: the decline in global inflation will stall in 2026, and core inflation in the U.S. will not return to the Fed’s 2% target until at least the end of 2027. This is stated in the International Monetary Fund’s (IMF) July economic outlook for 2026–2027, published on Wednesday. The report does not take into account the new escalation between the U.S. and Iran that began this week.

The IMF forecasts that inflation in the U.S. will not return to the Fed’s 2% target—or even come close to it—until the end of 2027, assuming the war with Iran ends. According to the IMF, the decline in global inflation will stall in 2026: the fund expects the overall rate to rise from 4.1% to 4.7% amid higher energy and food prices. Oil prices fell faster than expected following the fragile truce between the U.S. and Iran, but the damage to the economy has already been done, and it will take time to repair it, the IMF said.

On Wednesday, hostilities in the Persian Gulf flared up again: against this backdrop, major U.S. stock market indices are falling, while oil prices briefly jumped by more than 8%.

Inflation in the U.S. began to accelerate even before the conflict with Iran broke out in late February. In early 2025, it had fallen to 2.3%, but then picked up speed again, reaching 4.1% in May, according to MarketWatch. Economists largely point to the lingering effects of Trump’s tariffs and the spike in oil prices following the start of the war with Iran.

U.S. economic growth, however, remained largely unaffected. The IMF forecasts that the country’s GDP will grow by 2.3% in 2026 and by 2.2% in 2027—roughly in line with the previous forecast, notes MarketWatch. In 2025, the U.S. economy grew by 2.1% following GDP growth of 2.8% in 2024.

According to the IMF’s forecast, the global economy will grow by 3% this year—a figure that is also close to the previous estimate. “Overall, the global economy has so far weathered the shock of the war better than we had feared,” the IMF report states. “Economies have become less energy-intensive [they require less oil and gas than before] than they were even just a few years ago.”

At the same time, the U.S. and global economies remain vulnerable to new risks. The IMF pointed to uncertainty surrounding the conflict in the Middle East and also hinted at a possible negative reaction to artificial intelligence, which could hit the stock markets. “Political and geopolitical uncertainty is expected to remain elevated through 2027,” the organization stated. “The hype surrounding AI and overly optimistic financial markets” could lay the groundwork for instability.

This article was AI-translated and verified by a human editor