The Fed is playing 4D chess

If a war in the Middle East, the threat of an AI-pocalypse, and finance bros trying to model weren't all ominous enough, we just got a slew of alarming data points that might just point to the scariest word in investing: stagflation.

• The monthly jobs report came in far worse than expected: The US lost 92,000 jobs in February, the unemployment rate rose to 4.4%, and adjustments to previous monthly numbers paint an uglier picture of the labor market than anyone would like.
• Meanwhile, January retail sales took their biggest tumble in 8 months, signaling a lack of consumer confidence.

So, there’s the stag—what about the ’flation?

• Brent Crude just hit $90 per barrel, and it’s only going to keep climbing now that Kuwait is cutting production due to a lack of storage space for oil.
• That’s going to seriously spike fuel costs, which are in turn going to stoke inflation 2022-style (in the worst case scenario).

Say it with us: S-T-A-G-F-L-A-T-I-O-N

All of this news means one thing: The Federal Reserve’s mission just got even more impossible.

The central bank is under serious pressure from the White House to slash rates—a move that many economists supported before rising oil prices added a ton of inflationary pressure. Now, between tariffs that may or may not happen and reports that oil prices could rise to $150 per barrel, traders are pricing in a 95.5% chance that the Fed will keep rates unchanged at the next FOMC meeting. But that just means the problem is kicked down the road, not solved.

“From a policy standpoint, the February report and latest geopolitical developments complicate the Fed’s job by raising risks on both sides of the dual mandate,” explained EY-Parthenon Chief Economist Gregory Daco in a note today. “That combination is likely to leave the Committee more internally divided on where the greater threat lies.”—LB