Rising oil prices tied to the war in Iran have replaced tariffs as the leading threat to the U.S. economy, increasing inflation pressures while slowing projected economic growth, according to the UCLA Anderson Forecast released Wednesday.
The forecast said the national economy remains resilient but is facing a new inflationary shock following disruptions to oil shipments through the Strait of Hormuz. Researchers estimated the conflict has disrupted roughly 20 million barrels of oil per day, about 20% of global daily consumption.
The report projected inflation would peak at 4.5% while unemployment would rise modestly to 4.5%. Gross domestic product growth was expected to remain at about 2.1% this year rather than accelerate as previously anticipated.
“The 2020s are beginning to look eerily similar to the 1970s,” the forecast stated, citing a series of economic disruptions that included pandemic-related supply chain problems, the war in Ukraine, tariffs and now the conflict in Iran.
Researchers said continued investment in artificial intelligence, tax cuts and other fiscal support were helping offset the economic impact of higher energy prices. The forecast estimated AI-related infrastructure spending by major technology companies could approach $700 billion this year.
In California, economists said the state’s economy continued to outperform the nation in income and output growth but remained hampered by a weak labor market. California’s unemployment rate stood at 5.3% in April and was projected to average 5.5% in 2026.
The report said California faced added challenges because of higher fuel costs, its dependence on ports and logistics activity and continuing housing shortages. Economists expected the state’s employment slowdown to continue through at least the third quarter of 2026.
The forecast projected California employment growth of just 0.2% this year, although technology, artificial intelligence, aerospace and defense-related industries were expected to remain sources of strength. Housing construction also was expected to remain constrained by high mortgage rates, labor shortages and elevated building costs.
The UCLA Anderson Forecast’s Summer 2026 Economic Outlook conference was scheduled for Wednesday at 9 a.m. at the UCLA Anderson School of Management and online.