Inflation, Oil and The Fed

Markets had a lot to process this week as geopolitics, inflation data, housing, and the Federal Reserve all collided at once. The biggest headline continues to be rising tensions in the Middle East, particularly around the Strait of Hormuz—a critical shipping lane that moves roughly 20% of the world’s oil supply. Disruptions in the region have slowed tanker traffic, pushing oil prices higher and adding a fresh layer of uncertainty to global markets.

That pressure is already showing up in energy prices. Oil has moved higher on supply concerns, and while markets have remained relatively resilient so far, prolonged disruption could begin feeding into broader inflation. Policy headlines also picked up, with discussions around the Jones Act and potential U.S. responses to Iranian-related tensions adding another layer to the evolving energy story. Markets are also ending the week on a softer note, with stocks pulling back and bond yields moving higher as investors dial back expectations for rate cuts and continue to react to elevated oil prices and ongoing uncertainty.

On the inflation front, February’s Producer Price Index (PPI) reinforced a familiar theme—prices are cooling, but not fast enough. Progress is being made, but the pace remains uneven, especially with energy back in focus. Housing added another important piece this week. New home sales in January came in weaker than expected, falling sharply and marking one of the slowest paces in over a year. While some of the decline can be attributed to winter weather, it also highlights a broader trend—buyers remain sensitive to mortgage rates and affordability. At the same time, inventory is building, and prices have started to ease slightly, suggesting the market is still working toward balance. It’s another sign that higher rates are continuing to work their way through the economy.

Federal Reserve Update

The Federal Reserve wrapped up its March meeting by holding rates steady, but the real story was the shift in tone. This wasn’t just a pause—it was a reminder that the path forward is becoming less certain. Chairman Jerome Powell struck a balanced but cautious tone, emphasizing that the Fed is still waiting for clearer signs that inflation is under control. At the same time, rising oil prices and geopolitical tensions are adding a new layer of complexity to the outlook.

A few key takeaways stood out:

Uncertainty is rising again
Global tensions—especially in the Middle East—are now a key wildcard. Higher energy prices could push inflation up while also slowing growth.
Rate cuts are still expected—but not guaranteed
The Fed continues to project one rate cut this year, but nothing is locked in. Markets have already started adjusting expectations, with some investors questioning whether a cut happens at all if inflation remains sticky.
“We can afford to wait”
Powell emphasized patience. With the economy still holding up, the Fed sees no need to act quickly.
Inflation progress has slowed
Recent data, including producer prices, suggests inflation may be leveling off rather than continuing to decline steadily.
The bar for cuts remains high
The Fed needs more confidence that inflation is moving sustainably toward 2% before easing policy.

Interesting to Note

Spring officially begins this week! The average American spends about 90% of their time indoors—spring is a great reminder to get outside a bit more and get some vitamin D.

Looking Ahead

Fed Watch: Markets will continue parsing the Fed’s tone for clues on rate cuts.
Oil & Geopolitics: Any escalation—or resolution—could quickly impact energy prices and sentiment.
Housing Trends: Watching whether housing continues to soften under higher rates.

Have a wonderful weekend.

*Jones Act – a law that requires all goods traveling between U.S. ports to be moved on American made and American crewed ships.

Christopher E. Wasson, CFP^®

President

Mosaic Asset Partners, LLC

1122 Kenilworth Drive, Suite 310

Towson, MD 21204

410.821.0089 fax 410.821.5993

MosaicAssetPartners.com

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