Treasury
The latest New York Fed survey shows that US consumers' inflation expectations for the coming year rose to 3.4% in March, with gasoline prices expected to rise by 9.4%. Meanwhile, small business confidence has declined for the second consecutive quarter, with inflation becoming their primary concern. Analysts point out that the oil price shock triggered by the Iran war is bringing stagflation risks.
A survey released by the Institute for Supply Management (ISM) on Monday showed that US services sector expansion slowed in March, mainly due to the Iran war disrupting supply chains and intensifying inflationary pressures. The non-manufacturing composite index fell 2.1 percentage points to 54%, the employment index hit a more than two-year low, while the price index jumped sharply.
The U.S. job market rebounded in March, with nonfarm payrolls increasing by 178,000 and the unemployment rate falling to 4.3%. However, February's employment data was revised down sharply, indicating recent volatility in the labor market. Wage growth slowed, with the year-over-year rate dropping to 3.5%, the lowest since May 2021. Economists point out that job growth may remain weak in the coming months, with risks to the labor market tilted to the downside.
A survey released Thursday by the National Association for Business Economics (NABE) shows that the Iran war and other geopolitical conflicts are expected to slow economic growth this year and in 2027, and push up inflation. The survey was conducted in late March, as the war entered its fourth week, and surveyed economists lowered their expectations for the magnitude of rate cuts this year. The Federal Reserve's policy path faces uncertainty, with most respondents saying geopolitical risks have become the biggest threat to the U.S. economy.
The ISM reported on Wednesday that U.S. manufacturing activity expanded for a third consecutive month in March, but the index of input prices paid by manufacturers surged to 78.3%, the highest since June 2022. Among respondents, 64% of comments were negative, about 40% mentioned the Iran war, and 20% mentioned tariffs. Economists warned of upside risks to inflation, with the OECD forecasting overall inflation of 4.2% this year, more than double the Federal Reserve's target.
Despite the Iran war pushing up oil prices and fueling inflation concerns, the U.S. consumer confidence index rose slightly to 91.8 in March. However, the University of Michigan survey shows sentiment falling to a yearly low, with labor market indicators diverging, and economists warn that second-quarter spending could be restrained.
Federal Reserve Chair Jerome Powell said on Monday that stable long-term inflation expectations enable policymakers to keep borrowing costs unchanged while observing whether the Iran war triggers public concerns about future price pressures. He noted that the conflict's impact on the economy remains unclear, but the central bank is prepared to respond to any signs of labor market weakness or rising inflation pressures.
Data released by the University of Michigan on Friday shows that the U.S. consumer confidence index fell 6% month-over-month this month, hitting a new low for the year. The Iran conflict pushed up oil prices and impacted the stock market, causing households' short-term economic expectations to plummet by 14% and personal financial outlook expectations to drop by 10%. Regarding inflation expectations, the one-year inflation expectation rose to 3.8%, the largest single-month increase since April 2025. Federal Reserve Chairman Powell stated that he will closely monitor changes in inflation expectations.
In its latest interim economic outlook, the OECD warned that energy supply shocks triggered by the Iran conflict will push US inflation to 4.2% and drag economic growth down to 2%. This forecast contrasts with the optimistic expectations of Federal Reserve officials, highlighting the complex challenges facing monetary policy.
According to surveys released Wednesday by the Federal Reserve Banks of Richmond and Atlanta, CFO concerns about uncertainty increased more in the first quarter than any other worry, even as economic optimism improved slightly from the previous quarter. The surveys show tariffs and trade policy remain the top concern, followed by labor quality/availability and demand/sales/revenue. Uncertainty was the only major concern with a higher mention rate than in the fourth quarter of 2025.