Iran Strait remains closed while PCE confirms pre-war stagflation.
The ceasefire is fragile – but appears to be holding… The PCE index this morning confirms that inflation is creeping higher… and what investors should be thinking now
This morning, the headlines gave investors two things to weigh…
First, the ceasefire reached between the United States and Iran yesterday – while holding so far – is already beginning to suffer some cracks.
Second, this morning’s inflation report confirmed that pre-war core inflation was indeed uncomfortable.
Let’s look at each development separately.
The ceasefire is fragile – and the strait remains closed
The White House describes this week’s ceasefire as a “military victory,” but reports indicate that the Strait of Hormuz is still not fully open – a US condition for this ceasefire.
From Sultan Ahmed Al Jaber, CEO of Abu Dhabi National Oil Company:
The Strait of Hormuz is not open.
Access is restricted, adapted and controlled.
Iran informed nearby ships that they needed Tehran’s permission to pass and warned that ships attempting to cross without it “will be destroyed.”
The Iranian parliament speaker has already described the ceasefire as “unreasonable” and accused the United States of violating three of Tehran’s 10 conditions for ending the war. On the other hand, Iran has not given any clear indication that it intends to hand over the highly enriched uranium in its possession.
What further complicated the picture was that Israel struck Hezbollah targets in Lebanon on Wednesday. Iran has cited these strikes as a basis for keeping the strait restricted.
Bottom line: The ceasefire is real and is still holding. But this arrangement is fragile, contested, and involves major unresolved issues—and it does not yet constitute a clean “total victory.”
But that’s not the only thing investors are thinking about this morning…
This morning’s PCE index confirmed the rise in core inflation
The Bureau of Economic Analysis released the February personal consumption expenditures (PCE) index this morning — the Federal Reserve’s preferred measure of inflation.
Due to the government shutdown from October to November 2025, the report was originally scheduled to be released on March 27 and was postponed until today. So, this is our latest pre-war reading on the level of inflation when the conflict began.
The core PCE rate, which excludes volatile food and energy prices, was 3.0% year over year, in line with consensus but well above the Fed’s 2% target. Meanwhile, headline personal consumption expenditures averaged 2.8% annually. On a monthly basis, both core and headline rose by 0.4%.
At first glance, these numbers seem manageable – “in line with expectations” is how the financial press frames them. But there are two important layers under the main heading.
First, personal income fell 0.1% in February while consumer spending rose 0.5%. Economists had expected income to rise by 0.4%. This gap – high spending and low income – raises real questions about the sustainability of consumer demand.
Also worth noting: Q4 GDP growth was also revised to just 0.5% year over year, a significant decline from the initial estimate of 1.4%.
Second, these data completely predate the war. It does not reflect a single dollar of the energy shock, shipping surcharges, food price volatility, or supply chain disruptions that have rippled through the economy over the past five weeks.
So, let’s be clear: the core PCE rate was 3% with oil at $65. As I write on Thursday, oil is back at $102, the Strait of Hormuz remains closed, and data for March and April has not yet arrived. In other words, higher prices are still coming.
Now, despite this time lag, we still have clues about how prices moved during the war. Consider what has 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% increase in just six weeks.
- shipping: The US Postal Service has applied to impose an additional 8% delivery fee to address rising transportation costs.
- agriculture: Basic fertilizer prices have risen by more than 40% in one month, leading to higher costs for the upcoming fall harvest.
- Air travel: Delta raised checked bag fees to $45 to offset jet fuel costs, which have risen nearly 88% in major hubs since the conflict began.
- E-commerce: Amazon and other major retailers implemented a new 3.5% fuel surcharge effective April 17 to cover higher diesel costs for delivery fleets.
- Facilities: Natural gas fluctuations have already caused wholesale electricity prices to rise by as much as 45% in some areas, indicating a massive spike in summer cooling bills.
- Aluminum: Prices rose 8% in March alone, impacting the cost of everything from soda cans to consumer electronics and auto parts.
- Plastic: Prices of polyethylene and polypropylene – the building blocks of food containers and bottles – have risen by 37% to 40% since the start of the war.
Bottom line: Today’s data was not an inflationary shock, but it sets a higher baseline than we would prefer before such a shock arrives.
This leaves us with some questions…
First, will the strait really be reopened, removing the main source of disruption?
Second, since higher oil prices don’t hit the economy all at once, what might six weeks of higher costs mean for consumers as this inflation works its way through the system?
And third, what does all this mean for the Federal Reserve?
The Fed’s tightrope has gotten tighter
This is the predicament the Fed finds itself in now.
On the one hand, inflation was already above the pre-war target, and today’s data confirm that it was not moving convincingly towards the 2% target.
The war has put the energy shock above an already stubborn baseline, and the full impact on consumer prices is still to play out.
On the other hand, the economic data underlying today’s inflation numbers is declining. GDP growth for the fourth quarter was revised down to just 0.5%. The ISM’s service sector employment index for March fell to 45.2, a level historically associated with a recession. Unemployment claims this morning were 219,000, up 16,000 from the previous week and above expectations of 210,000 (although still broadly in line with recent trends).
The dual mandate – stable prices and maximum employment – pulls in opposite directions. Cutting interest rates to this inflationary profile risks adding gasoline to a fire that is already spreading. A weak economy threatens to push it into something worse.
Fed Chairman Jerome Powell addressed this tension last week:
By the time the effects of monetary policy tightening take effect, it is likely that the oil price shock will be long over, and that you are weighing on the economy at a time when it is most inappropriate.
Maybe we’ll eventually be faced with the question of what to do here. We’re not really facing it yet because we don’t know what the economic impacts will be.
In essence: The Fed is watching and waiting.
Minutes from the March Federal Open Market Committee meeting, released on Wednesday, showed that policymakers are concerned about both sides of the mandate but are generally leaning toward a cut later this year — assuming conditions allow for it.
What investors should watch next
So, where does this leave us?
Yesterday’s ceasefire – and the historic decline in oil prices – remains good news, even if the follow-up process is complicated. Today’s slightly higher stock prices as I write suggest that investors believe progress is real and sustainable.
But this morning’s data added to the headwinds. There is one final detail worth taking into consideration.
Yesterday, Luc Lango, our technology expert and magazine editor Innovation investorHe concluded that even on this side of the ceasefire, oil would not return to pre-war levels.
Damage to infrastructure, rerouting of shipping lines, residual risk premiums in energy markets – all mean that crude oil is likely to settle at a structurally higher level than it was before the conflict began.
From Luke:
Oil will not return to $65, it will likely settle into the 80s.
Good enough to recharge the rally in AI stocks. Not good enough to wake up the consumer economy.
This framework depicts the two-track market we are likely headed toward: AI-driven technology and names that can grow through rising costs on the one hand, and a consumer-facing economy that quietly absorbs a wave of price increases on the other.
So, what are our takeaways?
The most honest conclusion is “it’s complicated.” In such an environment, patience and non-reactivity are likely to be our best approach.
We will continue to monitor and report back here at digest.
I wish you a good evening,
Jeff Remsburg
Note: Most retail investors don’t realize how different the playing field is at the hedge fund level
The tools, the data, the speed – it’s not even close. But sometimes, parts of this world start to become more accessible to everyday investors. That’s the idea behind a new free presentation from our partners at Stansberry Research.
during Market Shakes 2026It dismantles a system built on “shadow data” – including signals derived from technology adoption trends that most investors never see. It’s designed for short-term moves, not long-term holding… and it’s one of the more interesting “evolving” conversations we’ve seen recently.
