Anticipating pain at the pump

There was no shortage of market-moving headlines last week. The ongoing conflict in Iran, which has now effectively closed the Strait of Hormuz, sent the price of brent crude above $100/barrel and led one energy think tank to describe the situation as “the largest supply disruption in the history of the global oil market."

The eventual impact also is beginning to flow into the consumer mindset. The University of Michigan consumer sentiment index slipped about a point from its prior level to 55.5, though still above recent lows. However, timing matters. The release noted that surveys conducted prior to the military action showed improvement. But in those occurring after the attacks by Israel and the US were notably more pessimistic, with gasoline prices the most immediate concern.

Last week’s economic data was mixed but still pointed in the direction of a stagflationary environment. GDP statistics for the fourth quarter of 2025 were revised down to growth rate of just 0.7%. Inflation readings were generally in line with expectations and showed little change from the prior month. Headline CPI increased 2.4% year-over-year in February, while PCE, the Fed’s preferred metric, rose 2.8% year-over-year in January. Inflation still lingers above the Fed’s 2% target and has yet to reflect the oil supply shock from the conflict in the Middle East.

Given the inflationary pressure, the market is now pricing just one Fed rate cut later this year. There should be no shortage of debates at the FOMC meeting this week and investors forward to how Chair Powell navigates the press conference.