GM. This is Milk Road Macro, the newsletter that connects wars, oil, and your job prospects faster than the market can say “no rate cuts”.
Here’s what we’ve got for you today:
- ✍️ What impact is the Iran war having on the american economy?
- 🎙️ The Milk Road Macro Show: Gold Price Prediction: Why the Bull Run Isn't Over w/ Jeffrey Christian.
- 🍪 Trump eases pressure on Iran oil.
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WHAT IMPACT IS THE IRAN WAR HAVING ON THE AMERICAN ECONOMY?
The Iran war continues, entering its fifth week.
And the resulting energy price shock continues to reverberate around the world.
Energy prices, including crude oil and natural gas, have surged higher as the vital Strait of Hormuz trade waterway remains effectively closed.
But is this energy price jump having any measurable effect on the U.S. economy?
We’re now seeing “wartime” economic data starting to trickle in.
Including important labor market data for March.
So, what’s the latest with the labor market?
What’s the latest with the Fed’s next move?
And what will happen with inflation?
Let’s take a look…
The latest labor market data
The Iran war began in late February, with the subsequent energy price shock starting to take hold in early March.
But still, America added a relatively impressive 178,000 jobs in March, according to official Non-farm Payroll data, nearly triple the consensus estimate of 65,000.
That’s a big improvement from February’s negative payroll print.
Even more impressively, this March number was driven entirely by a surge in private workers, which added 186,000 in March.
While Government workers continued to drop, sliding by 8,000 in March.
However, as has been the case for some time, the composition of those March jobs was subpar.
Job growth was once again heavily dominated by healthcare, a sector largely insulated from economic activity.
Still, total job growth is now rising on a three-month and six-month average basis, potentially “bottoming” in late 2025.
The official unemployment rate (the percentage of people in the labor force who do not have a job but are actively looking for one) also continues to fall, sitting at 4.26% for March.
The unemployment rate had previously been deteriorating throughout most of 2025, but it has now been improving since November.
On an unrounded basis, the recent one-month decline in the unemployment rate was the largest since December 2021.
However, looking ahead, job growth may slow again in the coming months.
NFIB hiring intentions (the share of small businesses planning to increase employment in the near future) are edging lower.
Source: Pantheon Macroeconomics
But while hiring has generally been muted for some time, firing has also been muted.
Initial Jobless Claims (the number of people claiming unemployment benefits for the first time) is hovering around its lowest level in years.
According to the Challenger survey, American employers announced 60,000 job cuts in March, above February's 48,000, but generally on a downward trajectory since early 2025.
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WHAT IMPACT IS THE IRAN WAR HAVING ON THE AMERICAN ECONOMY? (P2)
Overall, it’s the same picture as it has been for some time for the American labor market - not deteriorating, but probably not yet conclusively improving either.
We’re still in a “low hire, low fire” environment.
However, leading indicators for the labor market still look promising.
That includes the ASA Staffing Index, a private weekly measure of temporary employment, which has been rising on a year-on-year basis since early 2025.
Temporary employment data often historically leads headline labor market data, sometimes by a relatively long period of time.
From a long-term cycle perspective, businesses see more activity, so they increase temps before committing to costly full-time hires.
But will the energy price shock change things?
We’ve seen some small, promising signs for the labor market in recent months.
Or at least, there’s been no further significant deterioration.
But that could be under threat as the energy price shock continues.
If energy prices remain significantly elevated, it will take time for any potential effects on the labor market to occur.
Michael Pugliese, senior economist at Wells Fargo, said:
“If the conflict had not happened in the Middle East, I think the stabilization narrative would be gaining momentum. The problem, though, is we now have this new shock working its way through the economy.”
Goldman Sachs analysts think the energy shock will have an effect on the labor market, but not a massive impact.
They estimate the oil shock could raise the U.S. unemployment rate by about 0.1 percentage point and reduce payroll growth by roughly 10,000 jobs per month on net through year-end.
One scenario analysis by Oxford Economics says the labor market hit becomes meaningfully worse if oil stays very high for long enough.
The analysis concludes that Brent crude oil averaging about $140 for two months would be enough to push parts of the global economy into mild recession, with the U.S. nearing a temporary standstill and layoffs pushing up unemployment.
In a milder case of oil around $100 for two months, Oxford says growth would slow, but recessions would likely be avoided.
A 2025 paper from the IMF on oil shocks (written pre-war) estimates that a 10% oil price increase tends to weaken labor market conditions persistently: employment-to-population falls, and unemployment rises.
But the paper also adds that the damage can build up over several quarters rather than immediately.
What’s the latest on the Fed’s next move?
The Federal Reserve meets in late March for Jerome Powell’s last official meeting as chair.
And then, subject to confirmation, Kevin Warsh will take up the chair role for the next meeting in June.
While it's predicted that Warsh might be relatively dovish on interest rates, he faces a backdrop of:
- A labor market that may be slowly improving, or at least stabilizing.
- An energy price shock and a jump in inflation.
Not exactly an environment for cutting rates.
And interest rate traders are currently pricing a 79% probability of zero Fed rate cuts in 2026.
Earlier this year, as many as three cuts had been expected.
However, traders are also pricing a less than 10% chance of a rate hike this year.
So the market's overwhelming expectation is no change for interest rates in 2026, after the Fed last cut rates in December 2025.
Inflation data on deck
On Friday, we’ll also see the first big inflation print since the war started when we get the March inflation report.
Headline CPI in the U.S. has been falling for several months since Q3 2025 as fears over inflationary pressures from tariffs cooled.
But this downward slide will almost certainly end when we see the latest inflation data on Friday.
WTI crude oil is roughly 80% more expensive than it was in February, alongside a spike in prices of natural gas and many other vital substances that are transported through the Strait of Hormuz.
We could well see year-over-year CPI surge to 3%+, up from 2.4% in February.
A rise in headline inflation is probably now “baked in” for the next 3-6 months, even if the war ends tomorrow.
Currently, market-derived expectations of near-term inflation have risen from 2.3% pre-war to 3.3%.
This means the market currently expects headline U.S. inflation to be 3.3% on average over the next 12 months.
The national average “gas at the pump” price in America is already the highest since 2022.
On a rate-of-change basis, this is the fastest shift in gas prices for decades.
Wrapping up
There are some very small, promising signs that the U.S. labor market might be improving.
But this could now be in doubt as an energy price shock takes hold.
The most important datapoint of the week will be the inflation report on Friday.
This is likely to show a significant reacceleration in prices.
But this is expected, so how fast prices are accelerating will probably dictate the market reaction.
And what does this all mean for the Fed?
Well, almost certainly no rate cut later this month.
And potentially no change in rates at all in 2026.
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Two loaded LNG carriers seemingly aborted an attempt to exit the Persian Gulf via the Strait of Hormuz. Analysts have been keenly monitoring traffic in the Strait as a tiny trickle of vessels passes through the waterway, but the vital trade passage is still effectively closed.
President Trump took a significant step back on one key issue for energy markets: a U.S. campaign to control Iran’s oil. He said, “I’d like to take the oil because it’s there for the taking. Unfortunately, the American people would like to see us come home.”
The number of American homes that went under contract in March rose 4.6% year over year, according to Zillow. The jump comes even as mortgage rates rose steadily amid new fears about oil prices and inflation.
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