Here’s the consensus worry after eight weeks of conflict involving Iran: the oil shock will force the Federal Reserve to abandon rate cuts, inflation pressure will crack the tight labor market, and the artificial intelligence wave will finish the job. It’s a tidy, pessimistic story. Ben May, director of global macro research at Oxford Economics, isn’t buying it.

"We’re still expecting two rate cuts this year," May told MarketDash on Friday. This call came even as crude oil plunged 14% on news Iran had declared the Strait of Hormuz reopened—a decision Iran has since reversed, leaving Strait traffic at a standstill. The volatility is dramatic, but May’s view is distinctly constructive: two Fed cuts still in play, a recession probability he calls "pretty low," and a labor market that can absorb the AI transition without the mass layoffs Wall Street seems to expect.

The Fed’s Rate-Cut Path Isn’t Dead

Despite what he calls the biggest energy shock since 2022, May’s team still expects the Fed to deliver two rate cuts in 2026, most likely at the June or September meetings. The reasoning hinges on insulation. "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.

Here’s how that insulation works: 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 feeling the pinch, but less so than Europeans, and headline inflation in the U.S. is absorbing less of the Brent crude price move than it would in Germany or Italy. That buffer gives the Fed some breathing room.

Recession Odds Are Still Low

The second pillar of this optimistic view is growth. May attaches 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.

He dismisses first-quarter softness as temporary. "A lot of that’s down to some sort of temporary factors associated with poor weather and things like that." The tail risk, he acknowledges, 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."

AI: More Hype Than Job-Killer (So Far)

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 payroll softness was structural, that mass displacement was imminent—gets a firm 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 here matters. For AI to drive economy-wide layoffs, productivity has to surge, and it has to surge in a way that replaces labor rather than augments it. May indicates neither condition is met in the data. He’s skeptical of the corporate storytelling around job cuts, too. "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."

What It Means for Your Portfolio

So, to recap: two Fed cuts, no recession, a labor market that holds. That’s a supportive backdrop for U.S. equities, even as major indices—as tracked by the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ)—have already priced in much of the ceasefire rally.

The risk to this whole frame, of course, is oil. If the ceasefire collapses, if the Strait of Hormuz closes again, if Brent crude pushes back toward $110 a barrel, the insulation thesis thins out and the Fed’s room to cut rates narrows. But for now, Oxford Economics is betting on resilience over ruin.