This was the week the market got what it wanted — a ceasefire. On Monday, President Trump and Iran agreed to a two-week suspension of hostilities, and stocks ripped higher in one of the sharpest single-day rallies of the year. By Friday morning, it was already unraveling. Iran accused the U.S. of three ceasefire violations, Trump threatened to resume military action if talks fail, Saudi pipeline infrastructure was attacked, and Friday’s CPI report dropped like a bomb of its own: headline inflation surged to 3.3% year-over-year, the highest since May 2024. Meanwhile, the FOMC minutes released Wednesday confirmed what everyone already suspected — the Fed is paralyzed.
CPI: Gasoline Does the Damage
The Consumer Price Index (CPI) for March was the report everyone was dreading. Headline CPI rose 0.9% month-over-month — the largest monthly increase in years — pushing the year-over-year rate to 3.3%, well above the 3.1% consensus and more than a full percentage point higher than February’s 2.4% reading.
The energy index was the culprit and surged 10.9% in March, driven by a 21.2% spike in gasoline prices. That single category accounted for nearly three-quarters of the entire monthly increase. This is the Iran war showing up at the pump.
The silver lining is core CPI. Stripping out food and energy, prices rose just 0.2% month-over-month and 2.6% year-over-year — actually a deceleration from recent trends. Shelter costs continued to increase but at a slower pace and used car prices declined. The Fed will lean on this distinction between headline and core to justify staying put, but the average American doesn’t eat core CPI for breakfast. They eat food and fill their gas tanks, and both of those are getting more expensive.
Coming on top of last week’s hot PPI report — which showed producer prices rising 0.7% in February with pipeline pressures building across goods and services — the inflation picture is getting harder to spin as transitory. The PPI feeds into the PCE deflator, and the CPI feeds into the PCE deflator, and both of them are now pointing in the wrong direction.
FOMC Minutes: A Committee at War with Itself
The minutes of the March 17–18 FOMC meeting, released Wednesday, painted a picture of a committee that knows it’s stuck and isn’t pretending otherwise. The key passages are worth reading carefully, because the language reveals just how conflicted the Fed has become.
On inflation: Several participants flagged that near-term inflation expectations had risen, “reflecting the substantial rise in oil prices caused by events in the Middle East.” The vast majority concluded that “progress toward the Committee’s 2 percent objective could be slower than previously expected” and that the risk of inflation “running persistently above the Committee’s objective had increased.”
On the policy debate itself: “Some participants judged that there was a strong case for a two-sided description of the Committee’s future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation were to remain at above-target levels.” Read that again. Some members are openly contemplating rate hikes.
The staff’s own economic outlook was downgraded from January — weaker activity, less support from financial conditions — and the staff estimated total PCE inflation at 2.8% and core at 3.0% in February. The next meeting is April 28–29 and barring a dramatic change in the data or the war, another hold is virtually guaranteed.
Stocks: The Ceasefire Rally That Couldn’t
The S&P 500 snapped a five-week losing streak this week, rallying as much as 3.4% into Wednesday as the ceasefire trade took hold. The index ran up seven consecutive sessions and pushed back above 6,800 after bouncing from the 50-week moving average and giving the bulls something to cheer about.
In the chart above, we can see a nice two-week reversal in the upper right hand corner and we closed this week near the highs – a good sign for continuation. The momentum indicators at the bottom of the chart have yet to flip bullish but earnings reports next week could be a big influence in either direction.
Interest Rates: Stubbornly High
The 10-year Treasury yield ended the week near 4.32%, essentially unchanged despite all the drama. That tells you the bond market isn’t buying the “inflation is transitory” story. With headline inflation at 3.3% and gasoline prices still elevated, the long end is pricing in a world where the Fed stays on hold for an extended period and real yields remain positive.
For bond investors, the message is the same as last week: the short-to-intermediate part of the curve offers the best risk-reward. You’re getting paid a decent yield without taking on the duration risk of the long end, which remains vulnerable to further repricing if inflation stays sticky.
Putting It Together
The ceasefire was the best news markets have gotten in six weeks, and it still wasn’t enough. The Strait is technically “opening” but Iran is extracting million-dollar tolls. CPI just printed the hottest number in two years. And the FOMC minutes revealed a committee so divided that some members are talking about rate hikes while others are voting for cuts.
The word I keep coming back to is “fragile.” The ceasefire is fragile. The inflation progress is fragile. The stock market rally is fragile. Business confidence is fragile. If a path to a permanent settlement emerges, oil normalizes and the entire macro picture improves. If talks break down, we’re right back to $100+ crude, fresh CPI shocks, and a Fed that’s even more stuck.
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President, Kisco Capital
This commentary is provided by Kisco Capital LLC for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Opinions are subject to change without notice. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal. Kisco Capital and its clients may hold positions in securities discussed herein.
