Fed Watch – 3/13/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker, and thank you so much for joining me for this Friday the 13th edition of ITR Economics Fed Watch. It’s been a heavy data week, but I really want to focus in on one number today. Well, two numbers, and that’s inflation. Both CPI, which came in at 2.4%, and Core CPI, that other related number, 2.5%. If you were following these trends, you’ll notice that these are still persistently high. This is not a rapid rise in inflation, but these inflation numbers are relatively sticky.

We’re not seeing that further disinflation, that further cooling getting back toward 2% where the Federal Reserve would love for inflation to be over the long term. So what’s going into these numbers? Let’s talk again about the elephant in the room, that is the conflict in the Middle East. Iran specifically, we don’t see as much of a contribution to rise in oil prices from their own domestic production. The estimates are that Iran produces between 3% and 4% of the world’s oil supply. However, much of this is used domestically. So their exports average between one and a half and two million barrels per day. Most of that to China, that equates to about 1.4% to 1.9% of global supply. So taking this or some portion of this production offline, that’s really not what’s swinging the markets here. The big thing is the Strait of Hormuz. If we do see further shutdowns or even decreased traffic with the risk of attacks coming through that very important waterway, we will see some risk being priced into the markets. We’ve already started to see markets correct somewhat with regard to oil prices, as we often do get with a shock of this nature with a military move, we’ll see the markets almost shoot too high and then start to correct.

So we have updated oil prices. If you want to talk to your ITR economist about that, you’ll see our forecast reflecting this new tension and conflict environment. But I really want to stress that we are seeing these higher oil prices as something of a temporary measure. We’ve seen this in past conflicts. I’ll use the Ukraine war as another great example of taking oil supply offline. But we tend to see that that demand picture is a little bit less elastic. So temporary heightening in oil prices. This will strain certainly energy costs that does factor into CPI. Keep in mind, the numbers that we have seen this week, those are February’s numbers. So they’re not fully reflecting this new higher price environment as that conflict did begin on the 28th of February. We’ll see more of these energy impacts in future readings. What this means for the U.S. consumer, though, that’s a little bit more money because, well, higher prices at the pump, higher overall energy costs are seen as a negative, as straining these already strained consumer budgets. It’s important to note that we have seen the overall percentage, the share of our total budgets that are devoted to energy costs have really come down over time. They peaked back in the 70s and 80s. You remember a very different oil scenario at that point.

And then over time, over these more recent decades, we’ve seen a general grind lower and lower. And in fact, today, about 3.7 percent of total personal consumption expenditures go toward energy goods and services. So, yes, we expect that short term ramping up of oil prices, gasoline prices, et cetera. But while this will strain certain consumer budgets, especially that lower end of the income cohort, this is going to have a much more limited macroeconomic impact than it would have had historically in decades past when we simply devoted a higher share of our spending to those energy resources.

Again, I think these are going to be more temporary dislocations in pricing markets. I certainly don’t expect a huge ramping up of oil exploration. Companies know that this is not a new supply demand balance. They should not be expecting profitability levels to necessarily meet this higher hundred or so dollar per barrel oil level. So, well, potentially there’s some ramping up in production, both from the U.S., which is, by the way, now the largest producer in the world and from OPEC plus countries. We could see some release of reserves, as is already being talked about. Overall, don’t expect a significant shift to that long term supply picture. But if that’s the basis for inflation, it’s not just higher energy costs, it’s not just geopolitics pushing energy costs higher. We’ve seen electrical prices really respond to the ramp up in AI and data center construction. This is going to be one of the more pressing issues in months and quarters to come. We also have very broad based inflationary drivers. We’ve talked a lot about these in past episodes at Fed Watch, so I’m not going to belabor the point. But what this means for the Federal Reserve is that there’s another inflationary trend on the table. This doesn’t completely take a rate cut off the table this year, but I think it does make that burden a little bit harder to reach. Again, if we do see inflation creeping higher for a myriad of reasons, that’s going to make it harder for them to justify rate cuts and certainly harder to justify too many more cuts too deep into this year.

Now, we also this week have data on the PCE side of pricing. As you know, that is the Fed’s preferred inflation metric. I’m not going to focus so much on those numbers just because they are from January. So this is very much backward looking. We really want to look forward as there have been major changes. Other data that came out this week, GDP, first revision. We got a lot of numbers on the housing market between housing starts, permits, home sales. Those all seem to be holding in quite well.

Jobless claims, again, somewhat muted where we’ll talk more in future episodes about that labor side of the dual mandate. Really wanted to focus in on inflation this time around. But if you do have any questions about any of those data points that came out this week, please talk to your ITR economist. And we always get questions in the comments. Well, what if I don’t have an ITR economist?

I’m going to put a link below and we’re going to have a QR code that you can scan right up on this screen. Because if you don’t have one yet, if you want to have those conversations, we would love to have those conversations with you. We are so passionate about what we do about helping businesses and individuals. There are a number of different ways that we can do that. So please either scan the QR code or click the link below and tell us how we can help you.

What is going to make a difference in your life or in the life of your business as it relates to taking this data of which there is so much and really using it to cut through the noise to make those good business decisions. I also want to remind our viewers on March 20th, we have that profitless prosperity webinar coming up. Again, we’ll have a link in the description below. If you’re interested in registering for it, it’s not too late. It’s going to be just an information packed webinar. So many good tips and suggestions and really just playbooks for what you should be looking at, not even in the short term, but in the years to come for your business. So please join me for that webinar.

It’s going to be absolutely fantastic with Brian Beaulieu and Connor Lokar. But otherwise, we will be back next week with another episode of Fed Watch. Thank you so much for joining us. We’ll see you then.