Calmer waters, for now

The world cautiously exhaled last week on the news that a two-week ceasefire had been brokered between the US and Iran. While the deal seems to be on fragile terms, US markets reacted positively. The S&P 500 rallied, US Treasury yields fell and oil slipped — though per-barrel costs remain near triple-digit levels.

Last week’s inflation data quantified the impact most Americans have been feeling due to the Iran conflict, particularly at the pump. The Consumer Price Index (CPI) accelerated in March, increasing 0.9% compared to February’s 0.3% — driven by a surge in gasoline prices. The year-over-year reading of 3.3% was the hottest in more than two years, and well-above the Federal Reserve’s 2% target. But a potential silver lining is Core CPI, which excludes volatile food and energy costs. It rose just 0.2% month-over-month, in line with expectations.

Higher gas prices are undoubtedly weighing on consumers’ minds, as evident in a record low reading in the latest University of Michigan consumer sentiment index. Given the complexity of the energy supply chain, elevated costs may linger for some time, even with a permanent resolution to the war. The key question is how this sustained inflationary pressure will influence consumer behavior and spending.

Last week’s economic data also included a negative US GDP revision to 0.5% annualized growth in the fourth quarter of 2025, down from 0.7% prior. Still, National Economic Council Director Kevin Hassett believes the US economy can grow 4-5% this year, despite any impact from the Middle East conflict. While the positive outlook is appreciated, it is in contrast to the latest trends, and there are plenty of unknowns left to navigate.