US inflation comes in below expectations, but the ceasefire is fragile and rate cuts are pushed back

Overview

This report is Nomura's US economic weekly, focusing on progress in the Iran ceasefire, US March inflation data, consumer and labor market momentum, GDP tracking, the Federal Reserve policy outlook, and key economic releases in the coming week. The central thesis is that near-term inflation prints are below expectations, but geopolitical tensions, tariffs, AI-related supply shortages, and sticky services inflation still leave medium-term inflation risks tilted upward; US consumer momentum is slowing, but employment and income fundamentals have not clearly deteriorated.

Core views

Nomura believes the ceasefire agreement between the United States and Iran is on fragile footing, and the outcome of subsequent negotiations will affect oil prices, supply chains, and financial conditions. US March core CPI came in below expectations, and PCE-related components were also soft, so core PCE tracking was lowered; however, tariff-sensitive goods, energy prices, AI-related chips, and power shortages may still create fresh price pressures. On the consumer side, personal spending and high-frequency data have weakened, and consumer confidence has fallen to a multi-decade low, but private wage income and jobless-claim data still point to labor market stability. On policy, Nomura expects the Fed to make no further rate cuts during Powell's tenure and has pushed its two-cut 2026 expectation back to September and December.

Analysis framework

The report uses a weekly macro tracking framework, combining geopolitical events, CPI/PCE subcomponents, high-frequency consumer data, employment indicators, FOMC minutes, GDP nowcasts, and the upcoming data calendar to assess US growth, inflation, and the policy path. Its analysis is not based on a single asset valuation approach, but instead forms a macro view through inflation decomposition, cross-checking consumer and labor market data, interpreting policy communication, and assessing scenario risks.

Methodology notes

• Inflation trackingCPI to core PCE tracking

  Update the monthly core PCE tracking estimate using CPI components that map to PCE.

  Based on March CPI component performance, the report lowered its March core PCE inflation tracking estimate from 0.263% m-o-m to 0.187% m-o-m, implying roughly 3.060% y-o-y.

• Growth trackingGDP tracking

  Combine released spending, capital expenditure, and inventory data to update quarterly GDP annualized quarter-over-quarter forecasts.

  Nomura raised its first-quarter GDP estimate from 2.0% last week to 2.1% q-o-q ar, as stronger-than-expected core capital goods shipments and wholesale inventories offset weak personal spending.

• Policy analysisFOMC minutes interpretation

  Use the wording in the meeting minutes on inflation, employment, and reserve management purchases to infer policy bias.

  The report believes the March FOMC minutes were mildly hawkish, with most participants seeing rising inflation risks, and Nomura continues to expect the Fed to announce in its April meeting that reserve management purchases will slow to about $20 billion per month.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US Treasuries

  Affected by both softer-than-expected core inflation and a later rate-cut timing.

  Strengths

  The downward revisions to core CPI and PCE tracking help relieve upward pressure on yields.

  Weaknesses

  A hawkish FOMC minutes tone, core PCE still above target, and delayed cuts limit duration performance.

  Comparison

  Compared with a pure low-inflation scenario, this report places more emphasis on upside inflation risks and policy patience.

  Risks

  If oil prices, tariffs, and AI supply shortages push inflation higher, yields may move up again.

• US dollar

  Tied to delayed Fed cuts, geopolitical risks, and the relative resilience of the US economy.

  Strengths

  Later rate cuts and still-solid US growth may support the dollar's yield advantage.

  Weaknesses

  If consumer data continue to weaken, the market may reprice slower growth and easier policy expectations.

  Comparison

  The dollar's direction depends on whether inflation persistence or growth slowing dominates.

  Risks

  An escalation in geopolitical conflict or a sharp tightening in financial conditions could trigger safe-haven volatility.

• Crude oil

  The Iran war and transit arrangements in the Strait of Hormuz are the core drivers.

  Strengths

  A fragile ceasefire, transit disputes, and supply-disruption concerns may support the oil risk premium.

  Weaknesses

  If the ceasefire and negotiations progress, the recent oil price jump may prove short-lived, as suggested by WTI futures.

  Comparison

  The report argues that the US economy is relatively insulated from oil-price shocks, but oil still affects headline CPI.

  Risks

  If oil prices continue to rise by $10 per barrel, the report estimates headline CPI inflation would rise by 0.2 percentage points.

• US equities

  Affected by consumer momentum, AI cycle strength, interest-rate path, and geopolitical risks.

  Strengths

  Stable labor markets, the upward GDP tracking revision, and the broadening of corporate investment beyond AI support the growth backdrop.

  Weaknesses

  Slowing consumer momentum, delayed cuts, and geopolitical conflict may weigh on valuations.

  Comparison

  The report remains attentive to the AI cycle, but also warns that a break in the AI boom could lead to large valuation corrections.

  Risks

  An AI bubble burst, tighter financial conditions, or political pressure that damages Fed credibility could all trigger sharp market reactions.

Key data

• March core CPI0.196% m-o-mBelow Nomura's forecast of 0.286% and the consensus estimate of 0.3%.
• March core PCE tracking0.187% m-o-mCut from the pre-CPI estimate of 0.263%; equivalent to about 3.060% y-o-y.
• Gasoline prices21.2% m-o-mClose to Nomura's forecast of 22.8%.
• Household food prices-0.2% m-o-mUnexpectedly declined in March.
• ADP weekly private employment26k per weekFour-week average through March 21, the strongest reading in the survey's history.
• Continuing jobless claims1794kDown from a revised 1832k, the lowest since May 2024.
• Q1 GDP tracking2.1% q-o-q arRaised from 2.0% last week.
• Real final sales to private domestic purchasers2.0% q-o-q arCut from 2.1%.
• Q4 2026 core PCE forecast2.8% y-o-yStill above the Fed's 2% target.
• Fed rate-cut expectationOne cut each in September and December 2026The timing of cuts is pushed back as political pressure eases and price pressures from the Iran war build.

Impact & implications

For markets, the report delivers a combination of decent growth, unresolved inflation risks, and delayed policy easing. The weaker-than-expected short-term core CPI and core PCE tracking should help ease inflation concerns, but the Iran conflict, oil prices, tariffs, and supply shortages limit the bond market's ability to price in rapid rate cuts. Weakening consumption may weigh on cyclicals sentiment, but labor market resilience and the upward revision to GDP tracking reduce the strength of the recession narrative. If the ceasefire breaks down or oil prices continue to rise, inflation expectations could move higher and financial conditions could tighten.

Risks

• The Iran ceasefire agreement could break down because of the Strait of Hormuz, the scope of the Lebanon conflict, or accusations of violations by either side.
• Geopolitical escalation could push up oil prices, disrupt supply chains, and tighten financial conditions.
• Tariffs, memory-chip shortages, power constraints, and sticky wage inflation could keep core inflation elevated.
• If consumer spending and consumer confidence keep weakening, growth momentum could be hit.
• Political pressure on FOMC members could damage Fed credibility and trigger sharp market reactions.
• A reversal in the AI boom could lead to a meaningful correction in asset valuations.

What to watch

• Follow-up talks between the United States and Iran in Pakistan and the transit arrangements in the Strait of Hormuz.
• The impact of March PPI, import prices, industrial production, and housing-related data on inflation and growth assessments.
• Price, delivery-time, and confidence indicators in the NFIB small-business survey, Empire State, and Philly Fed manufacturing surveys.
• Whether initial and continuing jobless claims continue to show labor market stability.
• Whether the Fed Beige Book raises the assessment of economic activity and how it describes the Iran war and supply disruptions.
• Whether the April FOMC meeting announces a slowdown in reserve management purchases to about $20 billion per month.