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US Midyear Outlook: Geopolitical Shocks, the New Fed Era, and Growth

David Mericle, Alison Nathan

Recent U.S. economic data reveals unexpectedly resilient job growth and stickier inflation stabilizing near 3%, driven by geopolitical tensions in the Middle East and AI-related price measurement distortions. Goldman Sachs forecasts core PCE inflation to settle around 2.1% with real GDP growth of 2%, prompting expectations that the Federal Reserve will maintain current interest rates through July while shifting its policy stance toward neutralizing inflation regardless of its source. Despite market speculation regarding rate hikes, the primary economic risk remains a potential escalation of the Middle East conflict that could trigger sustained price increases and destabilize financial markets.