The ceasefire is fragile – but appears to be holding… this morning’s PCE confirms inflation is creeping higher… and what investors should be thinking about now
This morning, the headlines handed investors two things to weigh…
First, yesterday’s U.S./Iran ceasefire – while holding as I write – is already showing cracks.
Second, this morning’s inflation report confirmed that pre-war baseline inflation was already uncomfortable.
Let’s look at each development in turn.
The ceasefire is fragile – and the Strait is still closed
The White House is calling this week’s ceasefire a “military triumph,” yet reports indicate the Strait of Hormuz is still not fully open – a U.S. requirement for that ceasefire.
From Sultan Ahmed Al Jaber, the CEO of Abu Dhabi National Oil Company:
The Strait of Hormuz is not open.
Access is being restricted, conditioned and controlled.
Iran has told nearby ships they need Tehran’s permission to pass and warned that vessels attempting to transit without it “will be destroyed.”
Iran’s Parliament Speaker has already called the ceasefire “unreasonable,” accusing the U.S. of violating three of Tehran’s ten conditions for ending the war. Meanwhile, Iran has provided no clear signal that it intends to hand over its highly enriched uranium.
Also complicating the picture, Israel struck Hezbollah targets in Lebanon on Wednesday. Iran has cited those strikes as grounds to keep the Strait restricted.
Bottom line: the ceasefire is real and still holding as I write. But this is a fragile, contested arrangement with significant unresolved issues – not yet a clean “total victory.”
But that’s not the only thing investors are considering this morning…
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This morning’s PCE confirmed higher baseline inflation
The Bureau of Economic Analysis released the February Personal Consumption Expenditures (PCE) index this morning – the Federal Reserve’s preferred inflation gauge.
Due to the October–November 2025 government shutdown, the report was originally scheduled for March 27 and was delayed until today. So, this is the most current pre-war read we have on where inflation stood when the conflict began.
Core PCE, which strips out volatile food and energy prices, came in at 3.0% year-over-year, in line with consensus but well above the Fed’s 2% target. Meanwhile, headline PCE came in at 2.8% annually. On a monthly basis, both core and headline rose 0.4%.
At first glance, those numbers look manageable – “In line with expectations” is how the financial press is framing it. But there are two important layers underneath the headline.
First, personal income fell 0.1% in February while consumer spending rose 0.5%. Economists had expected income to rise 0.4%. That gap – spending up, income down – raises real questions about the durability of consumer demand.
Also, worth noting: Q4 GDP growth was also revised down to just 0.5% annualized, a significant cut from the initial 1.4% estimate.
Second, this data predates the war entirely. It doesn’t reflect a single dollar of the energy shock, the shipping surcharges, the food price volatility, or the supply chain disruptions that have been rippling through the economy for the past five weeks.
So, let’s be clear: core PCE was running at 3% with oil at $65. As I write on Thursday, oil is back at $102, the Strait of Hormuz is still functionally closed, and the March and April data haven’t landed yet. In other words, higher prices are still coming.
Now, despite that lag time, we still have clues about how prices have moved during the war. Consider what’s already happened in the real economy:
- Gasoline: The national average jumped from $2.98 before the war to a peak of $4.11 – a 38% surge in just six weeks.
- Shipping: The U.S. Postal Service filed for an emergency 8% delivery surcharge to combat rising transportation overhead.
- Agriculture: Essential fertilizer prices spiked more than 40% in a single month, baking higher costs into the upcoming fall harvest.
- Air Travel: Delta raised checked bag fees to $45 to offset jet fuel costs, which have soared nearly 88% in major hubs since the conflict began.
- E-Commerce: Amazon and other major retailers implemented a new 3.5% fuel surcharge taking effect April 17 to cover skyrocketing diesel costs for delivery fleets.
- Utilities: Natural gas volatility has already pushed wholesale electricity prices up to 45% higher in some regions, signaling a massive spike in summer cooling bills.
- Aluminum: Prices surged 8% in March alone, impacting the cost of everything from soda cans to consumer electronics and auto parts.
- Plastics: Polyethylene and polypropylene prices – the building blocks for food containers and bottles – surged 37% to 40% since the start of the war.
Bottom line: Today’s data wasn’t an inflation shock, but it establishes a higher baseline than we’d prefer before such a shock might arrive.
This leaves us with a few questions…
One, will the Strait truly reopen, removing the primary source of the disruption?
Two, because higher oil prices don’t hit the economy all at once, what will six weeks of rising costs mean for consumers as this inflation works its way through the system?
And three, what will all this mean for the Federal Reserve?
The Fed’s tightrope just got narrower
Here’s the bind in which the Fed now finds itself…
On one side, inflation was already above target before the war, and today’s data confirms it wasn’t moving convincingly toward the 2% goal.
The war has layered an energy shock on top of that already-stubborn baseline, and the full impact on consumer prices is still working its way through.
On the other side, the economic data underlying today’s inflation numbers is softening. The Q4 GDP growth was revised down to just 0.5%. The March ISM Services Employment Index fell to 45.2 – a level historically associated with recession. And this morning’s jobless claims came in at 219,000, up 16,000 from the prior week and above the 210,000 consensus (though still broadly in line with recent trends).
The dual mandate – stable prices and maximum employment – is pulling in opposite directions. Cutting rates into this inflation picture risks pouring gasoline on a fire that’s already spreading. Hiking into a weakening economy risks tipping it into something worse.
Fed Chair Jerome Powell addressed this tension last week:
By the time the effects of a tightening in monetary policy takes effect, the oil price shock is probably long gone, and you’re weighing on the economy at a time when it’s not appropriate…
We will eventually maybe face the question of what to do here. We’re not really facing it yet because we don’t know what the economic effects will be.
In essence: the Fed is watching and waiting.
The March FOMC minutes, released Wednesday, showed policymakers worried about both sides of the mandate but generally inclined toward cutting later this year – assuming conditions allow.
What investors should watch next
So, where does this leave us?
Yesterday’s ceasefire – and the historic pullback in oil prices – remains good news, even if the follow-through is complicated. And today’s mildly higher stock prices as I write suggests investors believe the progress is real and sustainable.
But this morning’s data added to the headwinds. And there’s one final detail worth factoring in.
Yesterday, Luke Lango, our technology expert and editor of Innovation Investor, concluded that even on this side of the ceasefire, oil isn’t going back to pre-war levels.
The infrastructure damage, the rerouting of shipping lanes, the lingering risk premium in energy markets – all of it means crude will likely settle at a structurally higher level than before the conflict began.
From Luke:
Oil won’t return to $65. Likely settles in the $80s.
Good enough to recharge the rally in AI stocks. Not good enough to reawaken the consumer economy.
That framing captures the two-track market we’re likely heading into: technology and AI-driven names that can grow through higher costs on one side, and a consumer-facing economy quietly absorbing a wave of price increases on the other.
So, what’s our takeaway?
The most honest conclusion is “it’s complicated.” In such an environment, patience and non-reactivity are likely our best approach.
We’ll keep monitoring and will report back here in the Digest.
Have a good evening,
Jeff Remsburg
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