Economic data showed signs of slowing before the Iran conflict, and The Conference Board lowered its 2026 growth forecast
The Conference Board reported on Thursday that January economic indicators showed signs of cooling, and it lowered its 2026 growth forecast by 0.1 percentage points to 2% due to the Iran conflict. In the Leading Economic Index, red flags flashed, including declines in consumer expectations, drops in building permits, and decreases in new manufacturing orders. The Federal Reserve kept interest rates unchanged the same day, but officials were divided over oil price shocks and the inflation outlook.
Key Takeaways
- The Conference Board said the economy showed signs of cooling in January, noting that the escalation of the conflict with Iran prompted it to cut its 2026 growth forecast by 0.1 percentage point to 2%.
- Warning signals pointing to slower growth ahead—including declining consumer expectations, falling permits for private housing construction, and reduced new orders for manufacturers—weakened the economic outlook. The organization stated this in its Leading Economic Index report on Thursday, an index that tracks 10 economic data points to predict turning points in the business cycle.
- "While the Leading Economic Index (LEI) overall continues to signal headwinds for economic activity, its components have shown broad-based strength on a six-month basis for three consecutive months (November 2025 to January 2026), with 7 of the 10 components rising," said Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board, in a statement. She added that data collection was completed before the outbreak of the conflict with Iran.
Deeper Dive
Federal Reserve officials on Wednesday raised their economic growth forecast for this year to 2.4% from 2.3% in December, while holding key interest rates steady and citing uncertainty about the economic impact of the war with Iran.
Fed Chair Jerome Powell said at a post-meeting press conference that it is too early to tell whether the conflict with Iran will lead to a sustained surge in oil prices, which could push up U.S. inflation, dampen consumer spending, and slow economic growth.
Since hostilities began on February 28, Iran has severely restricted the shipment of oil and other energy commodities through the Strait of Hormuz.
Brent crude futures(the global benchmark) have surged about 55%, from $73 per barrel to $112 per barrel.
Additionally, according to data from the American Automobile Association (AAA), the average price of regular gasoline over the past monthhas risen by 33%。
"This looks like it will be a prolonged conflict, and oil prices will remain higher for longer," Fed Governor Christopher Waller said on Friday.
"Therefore, this suggests inflation is more concerning than I originally thought," he said in an interview with CNBC. He voted on Wednesday to keep the main interest rate in the range of 3.5% to 3.75%.
Waller had dissented in January against the Fed's decision to hold the benchmark rate steady, saying that a weakening labor market warranted a rate cut.
Waller said that sustained higher oil prices couldintensify price pressures across the economy。
"Oil is a key intermediate import, and it eventually seeps through (the economy), so that's where you worry about a high and persistent oil shock," he said.
Fed Vice Chair Michelle Bowman, who also voted to keep borrowing costs unchanged on Wednesday, predicted on Friday that the central bank willcut the federal funds rate three times this year, each by 0.25 percentage point.
According to the dot plot released on Wednesday, Fed officials expect onlyone rate cut of 25 basis points this year。
"It's too early to tell the impact of Iran and the conflict," Bowman said in an interview with Fox Business Network, expressing optimism about economic growth.
"But I do expect that we will begin to see some supply-side policies take effect in the economy, as well as the effects of the 75 basis points of rate cuts we implemented last year," she said.