The consensus worry after eight weeks of Iran War has been that the oil shock would force the Federal Reserve to abandon rate cuts, that a tight labor market would crack under inflation pressure, and that the artificial intelligence wave would finish the job.

Ben May, director of global macro research at Oxford Economics, sees it differently.

“We’re still expecting two rate cuts this year,” May told Benzinga on Friday, as crude plunged 14% on news that Iran had declared the Strait of Hormuz reopened. However, Iran has since reversed its decision, and Strait traffic remains at a standstill.

The Fed Still Cuts Twice

May laid out a distinctly constructive case for the U.S.: two Fed cuts still in play this year, a recession probability he calls “pretty low,” and a labor market that he thinks can absorb the AI transition without the mass layoffs Wall Street keeps pricing in.

Despite the biggest energy shock since 2022, Oxford Economics still expects the Federal Reserve to deliver two rate cuts in 2026, most likely at the June or September meetings.

“We’re expecting the Fed to largely look through the higher inflation, partly because of its dual mandate, partly because certainly it’s probably a little bit more insulated from the inflation shock,” May says.

That insulation is the foundation of the call.

U.S. gasoline markets are more segmented from global crude than European fuel markets, which transmit oil prices almost directly to the pump. American drivers are hurting, but they are hurting less than European ones, and headline inflation in the U.S. is absorbing less of the Brent move than it would in Germany or Italy.

A ‘Pretty Low’ Recession Probability

The second pillar is growth. May attached a low probability to a U.S. recession in 2026, a notably more constructive stance than several Wall Street desks that moved their recession odds above 40% during the first weeks of the Iran conflict.

“The odds of recession — I think it’s pretty low, in the sense that the economy has been growing strongly,” May said.

First-quarter softness does not shake the call. “A lot of that’s down to some sort of temporary factors associated with poor weather and things like that.”

The tail risk is real but narrow. “If we see oil prices spiking up to crazy high levels, the U.S. wouldn’t be immune to recession. But that’s a sort of scenario that’s quite an extreme one, and certainly isn’t a baseline,” he said.

AI Is Not Hollowing Out The Labor Market

The third pillar, and perhaps the most contrarian, is May’s view of the American labor market in the age of AI.

The pre-war narrative that dominated Wall Street — that AI was already gutting white-collar hiring, that the softness in payrolls was structural, that displacement was imminent — gets pushback.

“We’ve said for a long while, we’re not convinced that AI is automatically bad news for workers,” May said.

“In essence, we don’t really think that AI has had much impact on productivity so far in the US or elsewhere.”

The logical chain matters.

For AI to drive economy-wide layoffs, productivity has to surge, and it has to surge in a way that replaces rather than augments labor. May indicated neither condition is met in the data.

“Lots of firms that are using AI or flagging AI as a reason why they’ve cut jobs — it may be the case, but it could also be trying to sell a bad news story as a good news story,” May said.

“If they overhired a couple of years ago and misjudged things, [it’s] much better to say we’re looking to improve efficiency via AI and cut jobs than say we misjudged, and we made a bad mistake,” he adds.

What It Means For Investors

Two Fed cuts. No recession. A labor market that holds.

That is a supportive backdrop for U.S. equities, even as major indices — as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) and the Invesco QQQ Trust (NASDAQ:QQQ) — have already priced much of the ceasefire rally.

The risk to May’s frame is oil. If the ceasefire collapses, if Hormuz closes again, if Brent pushes back toward $110, the insulation thesis thins out and the Fed’s room narrows.

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