A leading global policy organization has warned that conflict in the Middle East and its impact on energy markets will push U.S. inflation significantly above Federal Reserve expectations this year, potentially forcing policy adjustments.

The Organisation for Economic Co-operation and Development (OECD), in its latest economic outlook update, forecasts that overall U.S. inflation will reach 4.2% in 2026. This figure marks a substantial increase from its previous estimate of 2.8% and is considerably higher than the 2.7% projection updated by Federal Reserve officials last week.

The upward revision is attributed primarily to two factors: ongoing conflict in the Middle East and the persistent effects of U.S. tariffs, which continue to influence global prices despite recent reductions.

The OECD stated, "There is significant uncertainty regarding the scope and duration of the conflict, but prolonged high energy prices would substantially raise business costs and consumer price inflation, adversely affecting economic growth."

However, the organization noted that U.S. inflation could drop sharply to 1.6% in 2027, a level notably below the Fed's forecast of 2.2% and even under its 2% policy target. Core inflation, which excludes food and energy prices, is projected to be 2.8% this year and decline to 2.4% by 2027.

In its baseline forecast, the OECD expects the Federal Reserve to maintain its policy rate unchanged throughout 2027, citing "elevated near-term headline inflation, core inflation projected to remain above target in 2027, and solid GDP growth expectations."

The organization also cautioned that the Fed and other central banks worldwide "need to remain vigilant" against inflation risks.

The report added, "As long as inflation expectations remain anchored, the current supply-driven rise in global energy prices can be absorbed; however, policy adjustments may be necessary if broader price pressures emerge or signs of labor market weakness appear."

The OECD expects U.S. Gross Domestic Product (GDP) growth to rebound to 2% this year before slowing to 1.7% in 2027. In the fourth quarter of 2025, U.S. GDP growth had slowed sharply to 0.7%.

The OECD publishes a full economic outlook twice a year, with regular interim updates.