Updated · Federal Reserve Bank of San Francisco · Jun 4
SF Fed Sees U.S. Growth at 1.6% and Inflation at 3.8% as Hormuz Risks Lift Prices
Updated
Updated · Federal Reserve Bank of San Francisco · Jun 4
SF Fed Sees U.S. Growth at 1.6% and Inflation at 3.8% as Hormuz Risks Lift Prices
3 articles · Updated · Federal Reserve Bank of San Francisco · Jun 4
Summary
U.S. GDP grew at a 1.6% annualized rate in Q1 2026, the San Francisco Fed said, below its 2.0% long-run trend estimate as households pulled back somewhat under higher gas and grocery costs.
April inflation hit 3.8% on both CPI and headline PCE measures, with Middle East hostilities and uncertainty over Strait of Hormuz shipping lifting oil, commodity and goods prices.
Business investment—especially in AI infrastructure—was the biggest support for first-quarter growth, while unemployment held at 4.3% in April and state claims data showed little immediate labor-market stress.
The bank said inflation could rise a bit further this year and return to 2% only by end-2028, with prolonged supply disruptions risking weaker spending, slower investment and higher unemployment.
Markets have already shifted to expect no Fed rate cuts this year or next, and now assign some probability to a rate increase by December or early 2027.
With new tariffs and global conflicts fueling inflation, is another U.S. interest rate hike now inevitable?
Can the U.S. power its massive AI boom before the energy grid crisis stalls economic growth?
How is Middle Eastern investment in U.S. AI shaping the economic response to the region's instability?
Stagflation Risk 2026: U.S. Faces Slowing Growth, Record Household Debt, and Inflation Amid Iran Conflict and Strait of Hormuz Crisis
Overview
As of June 2026, the U.S. economy is under pressure from both slowing growth and persistent inflation. Real GDP was revised down due to weaker investment and consumer spending, especially in manufacturing, retail, and health care services. This slowdown, combined with high inflation, is straining American households, as seen in record-high credit card debt and falling savings rates. The situation is made worse by global events like the Iran conflict and the closure of the Strait of Hormuz, which have pushed up energy prices. Together, these factors raise concerns about stagflation and the risk of recession.