US Economy: Weekly Commentary – March 16, 2026

US Market Review

US Treasury yields rose sharply, reducing expected Fed rate cuts. US equities declined broadly, with the Magnificent 7 entering correction territory. Oil surged on Middle East tensions, while the dollar strengthened.

US Treasury yields rose sharply again this week, increasing between 15 and 18 basis points across the curve with little rotation between maturities. Since the start of the war, the entire curve has shifted higher by approximately 30 to 37 basis points, with the 30-year Treasury note closing near recent highs. This move has also significantly altered monetary policy expectations: markets have moved from pricing in more than two rate cuts this year to less than one.

US equity markets ended the week lower. Micro-cap stocks declined 1.75%, small-caps fell 1.71%, and large-caps dropped 1.60%. The “Magnificent 7” index also lost 1.72%, with the Bloomberg Magnificent 7 Index entering correction territory after falling 10.6% from its recent peak. At the sector level, declines were broad-based, with only energy (+2.0%) and utilities (+0.5%) posting gains.

In currency markets, the US dollar appreciated 1.71% against the euro. WTI crude oil surged 8.80% amid escalating tensions with Iran following attacks on oil tankers in the Strait of Hormuz, a critical chokepoint for global oil shipments. The attacks and renewed threats to close the strait heightened concerns about potential disruptions to Middle Eastern oil supply, pushing prices toward $100 per barrel as markets priced in the risk of shortages and higher inflation. Meanwhile, gold declined 3.05%, while Bitcoin advanced 4.47%.

US Market Views Synopsis

Inflation remained moderate in February. Q4 GDP grew 0.7%, down from 1.4%. Consumer sentiment fell 2%. Rising energy costs and geopolitical risks threaten growth and spending.

Inflation remained moderate in February. Headline CPI rose 0.3% MoM and 2.5% YoY, while core inflation increased 0.2% MoM and 2.4% YoY. Rising energy prices and Middle East tensions could push headline inflation above 3%, delaying the Federal Reserve’s 2% target. US economic growth slowed sharply at the end of 2025. Q4 GDP expanded just 0.7%, down from 1.4%, as weaker exports, consumer spending, government activity, and investment signalled slowing momentum. Full-year growth came in at 2.1%, the slowest pace since 2020, leaving the economy entering 2026 vulnerable to the US–Iran conflict, surging energy costs, a cooling labour market, and ongoing trade uncertainty. Consumer sentiment fell 2% to the year’s lowest level as households reacted to higher gasoline prices and geopolitical risks. Year-ahead inflation expectations held at 3.4%. Overall, rising costs, slowing growth, and weakening confidence point to mounting economic pressures in early 2026, likely constraining spending and investment.

Inflation

US February inflation remained moderate. Headline rose 0.3% MoM and 2.5% YoY. Rising energy costs and Middle East tensions may push inflation above 3%. The Fed’s 2% target could be delayed.

February’s US inflation data indicate that price pressures remained relatively contained prior to the recent military action in Iran, although the outlook is becoming more uncertain as rising energy costs and potential regional supply disruptions threaten to push inflation higher. Consumer prices increased 0.3% MoM and 2.5% YoY, broadly in line with expectations, while core inflation excluding food and energy rose a modest 0.2% MoM and 2.4% YoY, suggesting underlying price pressures were well behaved. Declines in used vehicle prices (-0.4% MoM), flat new vehicle prices, a 0.2% MoM drop in education and communication costs, and a modest 0.2% MoM increase in housing helped offset stronger gains in appliances (+3.1% MoM), apparel (+1.3% MoM), medical care services (+0.6% MoM) and airline fares (+1.3% MoM). Notably, goods prices excluding food and energy, sectors most exposed to tariffs, remain subdued, largely due to weakness in auto prices; even excluding autos, core goods rose just 0.2% MoM. Although appliance prices posted notable increases in recent months, earlier declines make it difficult to attribute the move directly to tariffs. With import prices rising while consumer prices remain relatively benign, much of the estimated $20–$25bn in additional monthly tariff costs appears to be absorbed by corporate margins, though the recent rebound in imports following the depletion of pre-tariff inventories suggests further cost pressures may still emerge.

Despite the broadly reassuring inflation print, markets remain cautious as escalating tensions in the Middle East are likely to drive energy prices higher, with gasoline, transport and airline costs already showing signs of upward pressure. As a result, headline US inflation could move back above 3% in the second quarter and remain above that threshold for much of the year, potentially delaying a return to the Federal Reserve’s 2% target until the second half of 2027. Nevertheless, persistently elevated energy costs could ultimately dampen demand in an environment where employment and wage growth are slowing, potentially easing core inflation over the medium term. For policymakers, the near-term rise in headline inflation may prompt caution, but continued moderation in core measures would likely allow the Federal Reserve to consider a limited number of rate cuts later in the year.

We expect US inflation to rise, driven by escalating energy costs and Middle East tensions, likely postponing any Federal Reserve rate cuts until late in the year.

GDP

US GDP growth slowed to 0.7% in Q4 2025, sharply revised down. Weak exports, spending and government drag signalled slowing momentum as energy shocks and labour weakness cloud the 2026 outlook.

US economic growth slowed more sharply than previously estimated at the end of 2025, highlighting a fragile backdrop just as geopolitical and domestic pressures intensify. Gross domestic product expanded at an annualised rate of 0.7% in the fourth quarter, down from the initial 1.4% reading and marking a steep deceleration from 4.4% growth in the third quarter, making it one of the weakest quarterly performances since 2022. The downward revision reflected softer exports, consumer spending, government outlays and investment: personal consumption’s contribution was cut from 1.58% to 1.33%, fixed investment from 0.40% to 0.29%, while the external sector swung from a +0.08% contribution to -0.21% as exports were revised sharply lower. Government activity also weighed more heavily than initially estimated, subtracting 1.03 percentage points from growth, largely due to the longest government shutdown on record, although private inventories were revised slightly higher. For the full year, US GDP growth was revised down to 2.1% in 2025, the slowest pace since the 2020 pandemic contraction. The weaker end-of-year momentum leaves the economy entering 2026 under mounting pressure from the economic fallout of the US–Iran conflict, surging energy prices, a cooling labour market and persistent trade uncertainty, raising concerns that inflation risks and slowing growth could complicate the Federal Reserve’s policy path in the months ahead.

We anticipate that rising inflation will intensify economic pressures, constraining consumer spending and investment, and contributing to slower overall growth in the coming quarters.

Consumer Sentiment

Consumer sentiment fell 2% to the year’s lowest level as gasoline prices and the Iran conflict weighed on households. Inflation expectations stabilised at 3.4%, while long-term expectations edged down.

Consumer sentiment declined roughly 2% this month, marking its lowest level of the year. Survey responses collected prior to the onset of U.S. military operations in Iran pointed to a modest improvement from the previous month, but sentiment deteriorated sharply in the nine days that followed, fully reversing those gains. Rising gasoline prices appear to have delivered the most immediate impact on households, although the extent to which higher fuel costs will pass through to broader consumer prices remains uncertain. Expectations for personal finances weakened across a broad cross-section of consumers spanning income groups, age brackets, and political affiliations, with national readings falling 7.5%. Interviews for the survey were conducted between February 17 and March 9, with roughly half completed after the start of the U.S. military conflict in Iran. Meanwhile, year-ahead inflation expectations halted a six-month streak of declines, holding at 3.4%, above all readings recorded in 2024 and well above the 2.3 to 3.0% range typical in the two years before the pandemic, while longer-run inflation expectations edged down slightly to 3.2%, within the 2.8 to 3.2% range seen in 2024 but still above the sub-2.8% levels observed in 2019 and 2020.

We expect consumer sentiment to weaken further in the near term as households respond to rising gasoline prices and heightened geopolitical uncertainty.