Fear and Inflation Concerns Pushing Rates Higher

As we discussed last week, the Iran conflict is causing interest rate and bond markets to ignore most of the economic reporting. Rates have jumped up to the same level we saw in September 2025, erasing all the progress we have made over the past 6 months. Inflation fears from spiking oil prices and the general level of uncertainty are the main culprits.  Despite what is transpiring on the geopolitical stage, the economic reports keep coming. 

CPI Report Shows Cooling Core

February’s Consumer Price Index (CPI) inflation report was released this week. The headline inflation reading was 0.3%, as expected. Yearly, the headline was 2.4%, also as expected. The Core Inflation reading, which strips out volatile food and energy prices, rose 0.2% and yearly remained at 2.5%. This may be a good core reading, but it reads from before the Iran conflict and inflationary concerns.  

Shelter, the largest sector of CPI, remained at 3% yearly, due to some low comparisons from 2025. Rent, the largest component of Shelter, only rose 0.1%. This is the lowest monthly increase in five years.  Once the Iran conflict is resolved and its inflationary pressures ease, the progress being made on Shelter will lead to lower Core Inflation.  

GDP Second Estimate Shows Weak Growth 

The Fourth Quarter 2025 Gross Domestic Product (GDP) second reading/estimate was released. It showed 0.7% annualized growth. That cut the first estimate in half, and it still is much lower than the estimates. The government shutdown played a large role in this outcome because the Federal government spending is a large component of GDP.  Without the shutdown, GDP would have been closer to 1.7%. There is one additional reading on Q4 GDP before the 2025 number is finalized. 

Durable Goods Orders Miss Expectations

The Durable Goods Orders for January showed relatively flat orders for the month. Markets were expecting a 1.2% rise. Core Durable Goods, which strips out defense and aircraft spending, were also flat at 0%, lower than the 0.5% rise that was expected.  Core Shipments, which is a component of GDP, fell 0.1% and was under the 0.4% estimated.  This could indicate further negative GDP revisions. 

PCE Inflation Report Mixed, Near Forecasts

The Federal Reserve’s (Fed) favorite inflation report is the Personal Consumption Expenditures (PCE). January’s PCE was finally released after being delayed by the government shutdown. It was in line with expectations. The Headline reading rose 0.3%, while the Core reading rose 0.4%.  Yearly, headline inflation declined by 0.1% to 2.8%, beating estimates.  The annual Core rate rose from 3% to 3.1%, as expected. Remember, the Fed’s target is 2% on Core PCE. Being from January, this data is older. Markets will likely give more weight to the February CPI numbers.   

Looking Ahead: FOMC Meeting and Key Data Ahead

Next week is the next Fed Open Market Committee meeting.  They will be releasing the important Summary of Economic Projections (SEP) that shows where the Fed members project the economy to be headed. 

• Tuesday, March 17: ADP Weekly Employment, NAHB Housing Market Index, Pending Home Sales 

• Wednesday, March 18: Producer Price Index, Fed Statement and SEP and Press Conference 

• Thursday, March 19: Jobless Claims, New Home Sales