The Fed's worst nightmare is materializing in front of our eyes. What is often overlooked is that the Fed primarily controls demand-side inflation, not supply-side inflation. In other words, it can influence how much people borrow and spend, but it cannot directly increase supply, like producing more oil. This means that in the case of a supply-shock, as we are seeing now with energy prices, the Fed often has to overcompensate on the demand-side to contain inflation, and vice-versa. During the pandemic in 2020, this meant effectively cutting interest rates to zero, as lockdowns triggered a sharp collapse in demand alongside widespread supply disruptions. With oil and gas prices skyrocketing, our models suggest US CPI inflation is set to rise toward 3.5%, or 150 basis points above the Fed's long-run target. In a vacuum chamber, this means the Fed should tighten policy and theoretically hike rates. However, the issue becomes the fact that the US labor market is objectively at its weakest point in years, and it has not improved despite recent Fed easing. Therefore, if the Fed hikes interest rates now, the US is positioning itself for a full-blown labor market crisis. On the flip side, if the Fed does not tighten its policy stance, US CPI inflation could potentially even exceed 4.0%, depending on how long the Iran War persists, and how long the post-war recovery takes. In a sudden turn of events, the Fed is now forced to pick between 3.5%+ inflation or 5.0%+ unemployment. The Fed is in a very bad spot.

There and back again, a jawboned barrel's tale this week.

EU urges countries to start filling gas storage early amid Iran war, sources say reuters.com/sustainability…

Tech stock valuations are back to the lows seen around the April 2025 tariff shock:

🇺🇸🇮🇱🇮🇷VP Vance told Netanyahu in a "difficult" call on Monday that several of Netanyahu's predictions about the war had proved far too optimistic, like the prospects of a popular uprising to topple the re@gime. @MarcACaputo & I writ@e for@axios.com/2026/03/27/van…WMW0PG

📈RECESSION FEARS BUILD Goldman Sachs sees a 30% U.S. recession risk, with slowing growth, rising inflation (2.5%), and higher unemployment (4.6%). Despite markets pricing hikes, Goldman still expects rate cuts ahead if conditions weaken. Prediction markets are even more37% recession odds and rising.kalshi.com/markets/kxrecs…A

10-year yield was sub 4% at the start of the war. Now it's over 4.4%. Worst month for $TLT since December 2024

JERA has secured 2 Bcm per year of LNG regasification capacity at the Dunkerque terminal in France, which is now fully contracted through 2036. pgjonline.com/news/2026/marc…

SENIOR IRANIAN OFFICIAL TO REUTERS: DIPLOMACY HAS NOT STOPPED, AND IF REALISM PREVAILS IN WASHINGTON, A PATH FORWARD MAY STILL BE FOUND

Two days of intense meetings in Washington, fresh from Abu Dhabi. Here is what I'm actually hearing — and what it means before Friday's deadline. 🔴 With Friday's deadline approaching, the five-day diplomatic window Trump opened for what he called a negotiating push, here is where I think we actually stand. The window is more a temperature-taking exercise than a breakthrough. Its real purpose is to determine whether the new leadership in Tehran is willing to make the kind of concessions to earn Israel and the GCC endorsement of whatever deal emerges. ➡️ Nothing I heard in Washington suggests they are. 🔴 The structural gap has not moved. Washington wants zero enrichment as the end state. Tehran insists enrichment is an inalienable right. That was the impasse before the bombs fell. Bombardment has not dissolved it, and if anything, it has hardened it into a matter of civilizational dignity for the Iranian side. In this regard, watch what Tehran does, not what it says. Ali Larijani, was replaced as Security Council head by Mohammad-Bagher Zolghadr, a hardline IRGC veteran whose entire career was built inside the revolutionary security apparatus. Simultaneously, Mojtaba Khamenei recalled 71-year-old Mohsen Rezaei, former IRGC commander-in-chief, out of active service for decades, to serve as his personal military adviser, now effectively heading a three-member wartime council alongside Ghalibaf and IRGC commander Ahmad Vahidi. ➡️ When a system reaches into retirement to staff its inner circle with ideological generals, it is not preparing to make historic concessions. It is closing ranks. 🔴 What we are dealing with is a three-body problem that no one in the diplomatic corridors is being fully honest about. The United States wants a deal for economic and political reasons (oil prices, markets, and Trump's consuming need to declare victory, mid term elections calculus). Israel wants to continue until structural elimination is achieved, as a frozen Iran is, from Tel Aviv's perspective, a threat merely postponed. Similarly, the GCC countries want permanent degradation, not a temporary freeze that leaves Iran with enough capacity to reconstitute its missiles program and sustain its leverage over strait of Hormuz. Iran, meanwhile, is negotiating survival, not surrender, and specifically, the right to reconstitute. ➡️ These four sets of interests do not overlap, and this ia a structural problem. 🔴🔴 Friday will tell us something. But I would not mistake what it tells us for a resolution.