The economy is getting hit from both sides: the labor market is still holding up, but inflation is poised to jump again as the Iran war feeds through energy, food and financing costs. That mix leaves the Federal Reserve with little room to ease, even as households absorb a fresh squeeze on essentials and borrowing.
New claims for U.S. unemployment benefits rose by 16,000 to 219,000 last week, still low enough to suggest layoffs are not spreading. Reuters also reported that the four-week PCE gauge, the Fed’s preferred inflation measure, rose 0.4 percent in February for a second straight month, while core PCE stayed at 3.0 percent year over year. Those numbers were already uncomfortable before the war’s oil shock hit, and economists now expect March CPI to come in sharply hotter, with headline inflation likely around 3.3 percent or more.
The pressure is already showing up in household budgets. CNN said the average 30-year mortgage rate climbed to 6.37 percent after five straight weeks of increases tied to higher Treasury yields and inflation nerves, while auto loan and credit card rates are unlikely to retreat soon if bond yields stay elevated. Consumer spending still rose 0.5 percent in February, but Reuters noted that real spending barely moved once inflation was stripped out, leaving a brittle-looking expansion underneath the nominal numbers.
- Mortgage costs are higher even after a slight weekly pullback.
- Gas and freight costs threaten to spill into food and other everyday prices.
- Fed officials are likely to stay on hold longer, with some now openly weighing future rate hikes.
