Officials from the Federal Reserve convened for the final time a little over two weeks after the start of the war led by the United States against Iran. At that time, they had very little data to assess the conflict’s impact on the economy and interest rate outlook, other than the rise in gasoline prices.
As they come together again this week, the indicators released over the past six weeks have not significantly refined this assessment, especially on critical issues like employment, inflation, and overall activity. Here is an overview of the figures they had since the beginning of the war at their mid-March meeting, and their evolution since then.
EMPLOYMENT
The labor market has shown almost no visible signs of the war so far. Overall employment growth figures have been distorted by specific factors like a strike in the healthcare sector in California and unfavorable weather conditions, providing few actionable signals. The unemployment rate dipped slightly in March but mainly due to a contraction in the labor force. Layoff activity, measured by weekly reports on new jobless claims – the most timely indicator of the job market – has shown little change in eight releases since the conflict began, including six released after the Fed’s last meeting.
INFLATION
Overall inflation has surged since the start of the war, driven by gasoline prices rising by about one-third to surpass $4 per gallon on a national average. Measures like the Consumer Price Index (CPI) and the Producer Price Index (PPI) have shown an unprecedented price acceleration in three or four years. Excluding food and energy costs, broader price growth pressures appear somewhat less pronounced so far.
The Fed has not yet received a formal war-period measure of the Personal Consumption Expenditures (PCE) price index, which it uses to set its 2% inflation target. However, estimates based on the CPI and PPI suggest that inflation has further deviated from the target since the start of the war, both overall and core inflation.
Manufacturing input costs, which soared in February according to the ISM’s monthly survey of purchasing managers, reached a new three-and-a-half-year high in March.
GROWTH & CONSUMPTION
Fed officials will not have a report on Gross Domestic Product (GDP) covering even a portion of the conflict period after this week’s meeting. The latest figures still concern the fourth quarter of 2025, a period where growth was hampered by a record federal government shutdown. Economic growth is expected to have rebounded to 2.3% in the first quarter, according to economists surveyed by Reuters. However, the range of estimates, from -0.2% to +3.9%, is unusually wide given the uncertainty surrounding the war’s impact.
As with GDP, Fed officials have not seen a complete report on consumer spending including the conflict period, but other consumption measures like retail sales have improved, both overall and for the control group.
INDUSTRIAL ACTIVITY
Some measures of manufacturing activity have seen a boost, partly due to customers trying to build up inventory in anticipation of shortages as global supply chains are disrupted due to the war. However, the Fed’s own data on industrial production went from the strongest gain in a year in February to the biggest drop in 18 months in March.
