MW The outlook for the U.S. economy is now a lot worse than just two weeks ago, economists say
By Greg Robb
Weaker growth and higher inflation expected
Construction work in January at a site in Manhattan.
The outlook for the U.S. economy has deteriorated rapidly in the past two weeks, according to an out-of-the-ordinary survey conducted by the National Association for Business Economists.
Economists expect the domestic impact of the military action in Iran to result in lower economic growth and higher inflation this year and into 2027.
The oil shock from the war has already pushed the average retail gasoline price above $4 a gallon. This hits the economy in two ways: boosting inflation and dampening disposable income which curtails growth.
More than two-thirds of economists worry things might get worse. In the language of the profession, "the risks are skewed to the downside."
The results were contained in a flash NABE conducted only two weeks after the group had finished a regularly scheduled report. The last time the organization released such a "flash" survey was a year ago when Donald Trump's "liberation day" tariffs were unveiled in the Rose Garden of the White House.
After preparing a regular report in early March, the NABE economists saw the need to revisit their findings. The outlook "shifted quickly and meaningfully," said Gregory Daco, the association's president.
To be sure, recent economic data have not been so dire. The ISM manufacturing PMI hit its highest level since 2022 in March. Retail sales for February showed a decent gain. And initial jobless claims, a sign of layoffs, have been remarkably low.
See: The U.S. isn't creating many jobs anymore. The March jobs report won't buck the trend.
In a survey completed on March 13, economists projected economic growth at a 2.1% rate for the fourth quarter versus the same period a year earlier. According to the "flash" survey just completed, one-third of the economists said they would lower that projection by up to 0.249 percentage point and another third cut their estimates by up to 0.49 percentage point.
Economists in the earlier survey expected core inflation of 2.7% this year. A majority of economists now expect it will be higher by up to 0.249 percentage point.
The latest poll found that economists now see a greater risk of recession.
Just under half of the economists put the likelihood of a recession just below 50%. When the economy is growing smoothly, odds of a recession hover around 15%.
The economists fractured over how the Fed will respond to the darkening outlook. After expecting two quarter-point cuts this year, economists are now split evenly among expecting no move, one interest-rate cut or two cuts this year. Only 3% of economists surveyed expect a rate hike.
The Fed has not changed rates this year. Fed Chair Jerome Powell has indicated the central bank is taking a wait-and-see stance.
In an interview with reporters on Wednesday, the St. Louis Fed president, Alberto Musalem, said he supported the policy of sticking to the sideline for now. "Policy is in a good place to react as needed to risks of higher inflation or a weaker labor market. I expect the current setting of the policy rate will remain appropriate for some time."
Pressed by reporters about how long "some time" might be, Musalem replied that he wasn't sure.
The St. Louis Fed president told reporters that he also saw greater downside risks to the U.S. economy. "The risks to the labor market and inflation both tilt in unfavorable directions, that is, toward a weaker labor market and a greater persistence of above-target inflation," he said.
These risks have risen recently, he said.
-Greg Robb
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(END) Dow Jones Newswires
April 02, 2026 12:49 ET (16:49 GMT)
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