A woman shops for prepared meals at Eataly on March 19, 2026 in the Manhattan area of New York City.
Robert Nickelsburg | getty images
US inflation will remain well above the Federal Reserve’s projections this year due to the Iran war and its impact on global energy markets, which will likely require policy action, according to a leading global policy group.
In its periodic updates As for economic conditions, the Organization for Economic Co-operation and Development has projected inflation for all goods in the US to be 4.2% for 2026.
This forecast is a sharp step up from the prior estimate of 2.8%. Moreover, it is much higher than the 2.7% Fed officials had estimated when they updated their own forecasts last week.
The revision is due to two primary factors: the war in the Middle East, and the ongoing impact from US tariffs, which are affecting prices worldwide despite being lower than prior levels.
“The breadth and duration of the conflict is highly uncertain, but a prolonged period of high energy prices will lead to significant increases in business costs and consumer price inflation, with adverse effects on growth,” the OECD said.
However, the agency said US inflation is likely to decline sharply to 1.6% in 2027, which is actually significantly lower than the Fed’s 2.2% forecast and well below the central bank’s 2% target. Core inflation, which excludes energy as well as food prices, is projected at 2.8% this year and 2.4% in 2027.
In its baseline forecast, the OECD said it thinks the Fed will keep its policy rate steady through 2027, reflecting “rising headline inflation in the near term, with headline inflation projected to remain above the target through 2027, and solid projected GDP growth.”
However, the organization cautioned that the Fed and its global counterparts “need to remain vigilant” against inflation risks.
“The current supply-led rise in global energy prices may remain subdued provided inflation expectations remain well anchored, but policy adjustment may be needed if there are signs of broader price pressures or weak labor market conditions,” the report said.
The agency believes that GDP in the US will grow at a pace of 2% this year, slowing to 1.7% in 2027. GDP contracted sharply to 0.7% in the fourth quarter of 2025.
The OECD provides its outlook twice a year with periodic updates.
