March Mid-Month Market Update

March Madness in Markets

The conflict with Iran has now entered its third week and has triggered notable shifts across global markets. Oil prices have spiked, Treasury yields have moved higher, equities have declined, and market expectations for Fed rate cuts have been scaled back. Much of the market’s attention remains focused on the Strait of Hormuz and the timeline for reopening this critical shipping channel. 

With no clear near-term resolution in sight, expectations are for oil prices to remain elevated, keeping inflation concerns at the forefront of investor sentiment. While the bond market’s initial reaction has centered on inflation risks, the narrative could increasingly shift toward concerns about slowing economic growth—raising the possibility that markets may begin to price in a more stagflationary macro environment. 

Mixed Economic Data Ahead of March FOMC Meeting 

Recent economic data has been mixed, providing ammunition for both hawks—who favor keeping rates unchanged—and doves—who support resuming the easing cycle.  

• Labor Market: The February employment report was broadly disappointing, with nonfarm payrolls showing a net loss of 92,000 jobs versus expectations for a gain of 55,000, while the unemployment rate rose to 4.4% (see chart below). That said, the report contained a fair amount of noise, as labor strikes in the healthcare sector, winter storm disruptions, and adjustments to the BLS birth-death model all contributed to the decline in reported job growth. 

• Inflation: The Fed’s preferred inflation gauge, Core Personal Consumption Expenditures (PCE), rose 0.4% in January, or 0.358% on an unrounded basis, the largest monthly Core PCE increase since February 2025. The year-over-year reading climbed to 3.1%, marking a two-year high (see chart below). On a three-month annualized basis, headline PCE is running at 3.5% and Core at 3.7%, while Core Services inflation remains elevated at 4.3%. While CPI has been somewhat more contained at 2.4% year-over-year for headline and 2.5% for core, the three-month annualized pace is still running closer to 3%. 

• Retail Sales: Although retail sales declined 0.2% in January, the figure was better than expected. Meanwhile, the Control Group, which feeds directly into GDP calculations, rose 0.3%, suggesting underlying consumer demand remains relatively resilient. 

At this week’s FOMC meeting, Chair Powell and the Committee are expected to highlight increased geopolitical uncertainty stemming from the Iran conflict, while likely signaling a continued wait-and-see approach regarding any meaningful changes to the monetary policy outlook. Markets expect the Fed to raise its inflation projections, though the median rate for the fed funds target range is likely to remain unchanged, with the Committee still penciling in 25 basis points of rate cuts in 2026 and another 25 basis points in 2027.