Iran War Threatens to Slam Global Economy, IMF Warns
Good evening. Here's what we're watching while mulling whether all the new inductees in the Rock and Roll Hall of Fame are truly deserving of enshrinement.
Iran War Threatens to Slam Global Economy, IMF Warns
We told you last week that the International Monetary Fund warned that it expected to cut its growth projections for the global economy this year as the war with Iran causes widespread disruption. Those new projections are out today in a report titled "Global Economy in the Shadow of War," and they do indeed forecast a slower rate of growth and higher inflation, with additional downside risk if the war drags on.
"Assuming that the conflict remains limited in duration and scope, global growth is projected to slow to 3.1 percent in 2026 and 3.2 percent in 2027," the IMF said. The forecast for 2026 was cut by 0.2 percentage points and represents a decline from 3.4% growth last year.
"Absent the war, global growth would have been revised upward," the new report notes. "Hence, the downward revision for 2026 largely reflects the disruptions from the conflict in the Middle East, partly offset by carryover from recent strong data and reduced tariff rates."
Global inflation is now projected to rise to 4.4% this year, compared with a projection of 3.8% included in the IMF's January outlook.
"Downside risks dominate the outlook": A longer war would mean even slower growth and higher prices. "Under an adverse scenario with larger and more persistent increases in energy prices, global growth would slow further to 2.5 percent in 2026, and inflation would reach 5.4 percent," the IMF warns. "Under a more severe scenario in which there is more damage to energy infrastructure in the conflict region, the impact would be even larger: Global growth would be cut to only about 2 percent in 2026, while headline inflation would be just above 6 percent by 2027. The impact on emerging-market and developing economies would be almost twice that on advanced economies."
The outlook for the United States: U.S. gross domestic product is expected to grow 2.3%, up from 2.1% in 2025. That's the strongest of any large, advanced economy - but slightly less than the 2.4% growth forecast back in January. Inflation is projected to average 3.2% for 2026, up from 2.8% last year - and up sharply from the 2.5% forecast in January. The report does see U.S. inflation falling back to 2.1% in 2027.
The bottom line: "After withstanding higher trade barriers and elevated uncertainty last year, global activity now faces a major test from the outbreak of war in the Middle East," the IMF says, becoming the latest organization to warn of the economic fallout from the Iran war - and President Trump's policies more broadly.
Senate GOP Leaders Race to Pull Together DHS Funding Blueprint
Senate Republican leaders are laying the groundwork for a vote next week on a budget blueprint required before they can pass a party-line reconciliation bill providing somewhere in the neighborhood of $75 billion for immigration enforcement agencies at the Department of Homeland Security, which has officially been shut down for two months.
The Senate GOP plan reportedly seeks to fund Immigration and Customs Enforcement and Customs and Border Protection for three and a half years, bypassing Democrats, who have refused to provide more money for the agencies without reforms after federal agents shot and killed two U.S. citizens in Minneapolis earlier this year. Democrats have demanded that federal immigration agents be required to obtain judicial warrants for searches of private property and be prohibited from wearing masks in most cases, among other reforms.
Senate Budget Committee Chair Lindsey Graham is reportedly preparing the budget resolution, which would direct the Committee on Homeland Security and Governmental Affairs and the Judiciary Committee to write the legislation.
Senate Majority Leader John Thune said this week that he is pushing for a very narrowly focused bill - "anorexic-like skinny," he reportedly called it - that would exclude provisions sought by other Republicans, including spending cuts to offset the new funding. The hope is that by doing so, Republicans can move quickly, steer clear of some politically sensitive votes and avoid delays and infighting that would threaten the measure. "To execute on it and do it with any kind of speed, you've got to keep it really tight," Thune reportedly said Monday.
Not all Republicans are on board with that approach, though. Some Senate Republicans are pushing for their priorities to be included, arguing that this is likely their last chance to enact some of those policies. On the House side, conservatives want to see all of DHS funded via the reconciliation bill and other agenda items included as well.
Republican Rep. Chip Roy, a leading member of the House Freedom Caucus, said in a post on X Monday evening that Thune isn't the only one deciding the shape of the reconciliation bill. Roy argued that Republicans should not be looking to separate ICE and CBP from the regular appropriations process. "Isolating DHS was stupid. Isolating ICE/CBP is worse," Ropy wrote. "We should move other priorities with ALL of DHS... we're running out of time to deliver and to clean up these repeated swamp messes."
Some conservatives are also calling for the reconciliation bill to include elements of the Save America Act, the package of new voting restrictions that President Trump has called his top legislative priority. That bill can't pass the Senate.
The bottom line: Republicans are looking to move quickly and are reportedly considering bypassing a Senate Budget Committee vote on the forthcoming blueprint, instead moving the bill right to the Senate floor. Fiscal hawks may take issue with Thune's plan, but Trump supports it and has called for the reconciliation bill to reach his desk by June 1.
Quote of the Day: A Diminished IRS
"They have defunded the police. There's no more succinct way to describe what's happened."
− Matthew Rappaport, a tax lawyer in New York, speaking to The Wall Street Journal about the deep cuts imposed on the IRS since President Trump returned to the White House.
The Trump administration and Republicans in Congress have sharply reduced the IRS's capacity through layoffs and budget cuts, pushing tax enforcement spending to its lowest level in at least two decades. As the Journal's Richard Rubin reports this week, the reductions are stimulating a "vibe shift" among taxpayers and tax-shelter engineers looking for ways to reduce tax bills, by hook or by crook.
IRS officials appointed under Trump say they will make up for massive staffing reductions through the use of technology, but many tax experts believe that the cuts will cost the federal government billions in lost revenue. According to a study by the nonpartisan Budget Lab at Yale, the government will save about $45 billion over 10 years through its layoffs of about 28,000 IRS workers, the staffing reduction reported through 2025. But those layoffs will cost the government an estimated $643 billion in lost revenue over the same period as the number of audits falls and voluntary compliance weakens.
As the tax gap - the difference between what the government is owed and what it actually collects each year - soars past the half-trillion mark, some tax professionals are pessimistic about overall IRS competence in the future, given the cuts already enacted and those likely to come. Rappaport told the Journal that the Trump administration's treatment of the tax agency reminded him of how his 3-year-old plays with his toys, saying: "They've taken the federal government by the plastic dinosaur tail and mashed it 'til its head came off."
Fiscal News Roundup
- Trump Hints US-Iran Talks Could Resume Over Next Two Days – CNN
- War Threatens to Wreak Havoc With the Global Economy, IMF Warns – Politico
- The War in Iran Hits Home as Housing Rebound Stalls – Politico
- US Economy Remains Resilient in Face of Iran War, Banks Say – Wall Street Journal
- Thune to Press Fractious GOP to Back Narrow DHS Funding Plan – Bloomberg
- GOP Leaders Prepare to Steamroll Opponents of DHS Funding Plan – Politico
- Trump's Fed Pick Discloses Vast Wealth Ahead of Confirmation Hearing – New York Times
- Bessent Suggests Fed Should Hold Off on Rate Cuts for Now Amid War Uncertainty – Politico
- Wholesale Inflation Rose in March to Three-Year High – CNN
- More Americans Doubt Vaccine Safety Than Trust It, POLITICO Poll Finds – Politico
- Houston Is Facing $110 Million Security-Funds Cut After ICE Vote – Bloomberg
- 'A Crisis in the Making': Nebraska Races to Impose Work Requirements on Medicaid – Politico
- Trump and New York Are in a Tug of War Over Medicaid Coverage – New York Times
- Americans Are Getting Bigger Tax Refunds, but Few Are Noticing the Benefit – NPR
- Immigrants Are Scared to File Taxes. It Could Cost the U.S. Billions – New York Times
- America's New Tax Mantra: 'The IRS Isn't Going to Catch Me' – Wall Street Journal
Views and Analysis
- Trump's Latest Oil Blockade Brings Bigger Economic Risks – Rebecca F. Elliott, New York Times
- How Many More Inflation Shocks Can the Fed Ignore? – Bloomberg Editorial Board
- Trump's Decision to Blockade Iran Ups the Ante on Prices – Scott Waldman and Grace Yarrow, Politico
- $133 vs. $99. What Is the Real Price for a Barrel of Oil? – Jinjoo Lee, Wall Street Journal
- Trump Wants You to Cheat on Your Taxes – Timothy Noah, New Republic
- The Winners This Tax Season? Private-Jet Owners – Matt Stieb, New York
- The Salary Penalty: Why Trump's Tax Bill Hits a Banker Harder Than a Plumber – Ben Steverman, Bloomberg
- A Weakened IRS Has Significant Consequences – Yale Budget Lab
- America's Income Tax Is Progressive – Washington Post Editorial Board
- American Compass's "Tariff Tally" Doesn't Add Up – Erica York and Alex Durante, Tax Foundation
- Soaring Power Bills Threaten to Swing US Elections – Josh Saul and Ari Natter, Bloomberg
- China Shock 2.0: The Flood of High-Tech Goods That Will Change the World – Edward Luce, Financial Times
- The View From Inside Trump's DHS – Rachel Poser, Emily Bazelon and Matthew Purdy, New York Times