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As the war in Iran rolls into its seventh week, markets are still putting more weight on impacts to inflation than a potential growth shock down the road, Goldman Sachs economists wrote in a client note on Tuesday.<\/p>\n
Since the war began, yields have increased across all G10 economies, with six of those governments now expected to raise rates in 2026, up from three prior to the outbreak of conflict, economists George Cole and William Marshall wrote.<\/p>\n
Only the US Federal Reserve is expected to cut rates this year, though the timeline for a cut has been pushed out, the economists said.<\/p>\n
\u201cDespite the potential for commodity price spikes to lead to weaker growth, this energy price shock has led to higher rates and hawkish forecast revisions for many central banks,\u201d Cole and Marshall wrote.<\/p>\n
The temporary ceasefire agreement between the US and Iran has reduced the risk of a sudden inflationary shock, the economists noted \u2014 though the perception of lower risks \u201cleaves financial conditions looser and growth risks lower.\u201d<\/p>\n
That said, Cole and Marshall wrote, the economic risks of the conflict remain skewed toward higher inflation.<\/p>\n
\u201cSo far the inflationary aspects of the commodity price shock have dominated growth concerns,\u201d Cole and Marshall wrote. \u201cUnless the market sees forward growth prospects deteriorate sharply, this repricing is likely to remain somewhat sticky even as front-end yields sit higher than most of our baseline forecasts for central bank paths.\u201d<\/p>\n<\/div>\n