Slowing Growth, Sticky Inflation

Growth is slowing, with realized GDP running at 0.70% quarter-over-quarter SAAR, pointing to a materially softer expansion backdrop. The oil shock tied to Middle East escalation acts as a tax on consumers and businesses, threatening demand through weaker real incomes, lower confidence, and tighter financial conditions. Watch the next GDP estimate and incoming activity data; a further downgrade or continued sub-1% growth would strengthen the case that the economy is losing momentum.

Inflation remains re-accelerating, with Core CPI at 2.46% year over year and the three-month trend running at 3.45%, indicating firmer underlying price momentum. The jump in oil to $116 a barrel raises the risk of renewed energy pass-through into headline inflation and tighter financial conditions that can complicate the disinflation path. Watch the next CPI and PCE prints; another month with core measures holding near the current three-month pace would reinforce re-acceleration and push easing expectations further out.

The unemployment rate was 4.3% in March, essentially in line with the 4.31% expectation and down from 4.4% in February, while jobless claims printed 207,750 after 210,750 the prior week. Watch whether unemployment holds near 4.3% and claims remain around current levels; a sustained rise in either would signal labor-market softening is becoming more pronounced.

Risk conditions look more fragile than the underlying market signal suggests, with the 2s10s curve still positive at 52.0 basis points but the broader regime tilted elevated risk-off. Escalation in the Middle East and oil at $116 a barrel transmit through higher inflation expectations, weaker equities, and tighter financial conditions, amplifying cross-asset stress. Watch whether geopolitical tensions ease and whether the curve, credit, and equities stabilize; persistent deterioration would confirm that risk aversion is becoming macro-relevant.

Policy remains on hold, with the policy midpoint at 3.625% and the current stance still restrictive relative to the backdrop implied by inflation and growth signals. Watch the next Fed decision and communication for any shift in reaction function; persistent inflation re-acceleration or a sharper growth slowdown would alter the balance between patience and easing.

Middle East and Iran war headlines drove a sharp oil and risk-off spike, with Brent/WTI cited near $116 and Houthi attacks escalating fears. But the weekly state shifted to de-escalating as oil-risk-premium unwind and de-escalation themes emerged.