What the Fed has seen about the war's impact on the economy so far

By Dan Burns

April 29 (Reuters) - Federal Reserve officials last met just over two weeks into the U.S.-led war on Iran and then had little data at their disposal beyond surging gasoline prices to assess its impact on the economy and the outlook for interest rates.

As they meet again this week, the data over the past six weeks has not done much to sharpen that picture, especially on the topics most critical to their policymaking like the job market, inflation and overall activity.

Here's a snapshot of what figures were available to them since the war's start when they met in mid-March and how those have evolved since.

EMPLOYMENT

The job market has shown almost no visible imprint from the war so far. Headline job growth figures have been distorted by one-time factors, such as a healthcare strike in California and bad weather, so have provided little signal. The jobless rate ticked lower in March but largely because of a decline in the workforce. Layoff activity as indicated by weekly reports on new claims for unemployment benefits - the most timely window into the state of the job market - has shown almost no change through eight readings over the course of the war so far, six of which have come in since Fed officials last met.?

Data Latest in hand New since

March 17-18

Nonfarm February: -92k March: +178k

payrolls February (rev.):

change -133k

Unemployment February: 4.4% March: 4.3%

rate

Jobless claims 2 weekly 6 weekly reports,

reports, little changed

little changed

INFLATION

Headline inflation readings have shot higher since the war's onset, led by gasoline prices climbing by roughly a third to crest the $4-a-gallon mark on a national average. Measures such as the Consumer Price Index and Producer Price Index have shown prices accelerating by the most in three to four years. Stripping out food and especially energy costs shows broader price-growth pressures to be somewhat less aggravated so far.

The Fed has yet, however, to see a formal wartime reading of the Personal Consumption Expenditures price index that it uses to set its 2% inflation target and will not see a report for March, the first full month of the conflict, until Thursday, a day after this week's meeting adjourns. But estimates based off the CPI and PPI readings suggest it has moved further above target since the war began at both the headline and core level.

Manufacturing input costs, which had soared in February according to the Institute for Supply Management's benchmark monthly survey of purchasing managers,?rose to a new three-and-a-half-year high in March.

Fed officials worry that the longer prices stay elevated - especially for products as influential as gasoline in shaping consumers' outlooks for price changes - risks may grow that inflation expectations begin to become unanchored, and that would make their job of inflation containment all the harder. Some more volatile measures of households' inflation expectations, such as the University of Michigan's Consumer Sentiment Index survey, are notably higher since the war began. Other measures have remained more subdued to suggest expectations remain anchored for now, including the New York Fed's Survey of Consumer Expectations and market-based gauges like Treasury Inflation Protected Securities breakeven inflation rates and a derivative of those known as the five-year, five-year forward rate.

Data Latest in hand New since

March 17-18

CPI February: March:?

0.3% m/m 0.9% m/m

2.4% y/y 3.3% y/y

Core (ex-food, Core:

energy): 0.2% m/m

0.2% m/m 2.6% y/y

2.5%

PPI January: March:

0.5% m/m 0.5% m/m

2.9% y/y 4.0% y/y

Core (ex-food, Core:

energy, 0.2% m/m

trade): 3.6% y/y

0.3% m/m ?

3.4% y/y February:?

? 0.5% m/m (rev.)

3.4% y/y (rev.)??

Core:

0.5% m/m

3.5% y/y

?

January (rev.):

0.6% m/m??

3.1% y/y

Core:

0.5% m/m

3.5% y/y

PCE January: February:

0.3% m/m 0.4% m/m

2.8% y/y 2.8% y/y

Core: Core:

0.4% m/m 0.4% m/m

3.1% y/y 3.0% y/y

ISM prices February: 70.5 March: 78.3

paid index ?

UMich February: March:

inflation 3.4% 1-year 3.8% 1-year

expectations 3.3% 5-year 3.2% 5-year

?

April:

4.7% 1-year

3.5% 5-year????

New York Fed February: March:

SCE inflation 3.0% 1-year 3.4% 1-year

expectations 3.0% 3-year 3.1% 3-year

TIPS March 16: April 27:

breakevens 2.64% 5-year 2.65% 5-year

2.36% 10-year 2.45% 10-year

2.14% 5Y5Y fwd 2.23% 5Y5Y fwd

? ?

GROWTH & CONSUMPTION

Fed officials will not see a gross domestic product report covering even part of the conflict period until after this week's meeting. The latest-available figures still refer to the fourth quarter of 2025, a period when growth was restrained by a record-long federal government shutdown. Economic growth is expected to have rebounded to 2.3% in the first quarter, according to economists polled by Reuters, but the range of estimates from minus 0.2% to plus 3.9% is unusually wide given the uncertainty over the war's impact. The growth recovery is owing in part to the effects of the Republican tax cuts enacted last year, which resulted in larger individual tax refunds this filing season that appear to be buoying household spending and faster business investment depreciation that is seen lifting corporate capital expenditures.?

As with GDP, Fed officials still have not seen a full consumer spending report that includes the conflict period, but other measures of consumption like retail sales have risen at both the headline and core levels.

Data Latest in hand New since

March 17-18

GDP Q4 2nd read: Q4 3rd read:

0.7% 0.5%

Retail sales January: March:

-0.2% 1.7%

Control: Control:

0.3% 0.7%

?

February:

0.7% (rev.)

Control:

0.6% (rev.)

?

January (rev.):

0.0%

Control:

0.5%?

Consumer January: February:

spending 0.4%? 0.5%

?

January (rev.):

0.3%?

INDUSTRIAL ACTIVITY

Some measures of manufacturing activity have seen a lift thanks in part to customers trying to build goods stockpiles in anticipation of shortages as global supply chains get gummed up by the war. But the Fed's own industrial output data flipped from reporting the biggest gain in a year in February to the biggest drop in 18 months in March.

Data Latest in hand New since

March 17-18

Industrial February: March:

production 0.2% -0.5%

February (rev.):

0.7%

Manufacturing February: March:

output 0.2% -0.1%

February (rev.):

0.4%

ISM February: March:

manufacturing 52.4 52.7

index

(Reporting by Dan Burns; Editing by Andrea Ricci )