Inflation Comes in Hot
Benjamin Cowen examines a hotter-than-expected CPI report and argues that rising energy prices tied to the Middle East conflict are adding to inflation and complicating the Federal Reserve’s decisions. He concludes that uncertainty over the conflict and interest rates is weighing on rate-sensitive stocks, while oil could keep rising unless the conflict ends or a recession occurs; he also expects the dollar to strengthen over the next year.
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Cowen reports that year-over-year headline inflation came in at 3.7%, above the 3.6% consensus and last month’s 3.4%.
He argues that rising oil prices are contributing to inflation and expects higher energy prices to affect the next inflation report if oil continues drifting upward.
Cowen says transportation inflation has risen since the Iran war began in early 2026, while housing inflation also increased.
He argues that the energy-price supply shock is forcing the Fed to raise rates as inflation rises.
Cowen says the labor market has tightened somewhat over the past year, with job openings still low and hiring and quits down.
Hotter CPI And Oil
CPI rose above consensus as energy prices climbed, and Cowen says oil’s rise could feed into upcoming inflation reports if the Middle East conflict persists.
CPI Category Contributions
Housing and transportation are major contributors to headline CPI, with transportation inflation rising alongside energy prices while several other categories moved unevenly.
Treasury Yields And Midterms
Cowen says elevated Treasury yields are keeping pressure on rates and may remain high through the midterms before potentially easing afterward.
Fed Faces Supply Shock
With energy-driven inflation rising and the conflict’s duration unknown, Cowen argues the Fed cannot safely assume the shock will be temporary.
Rates And Business Cycles
Cowen weighs a still-adequate but softening labor market against inflation risks, noting that the effects of restrictive rates depend on both their level and duration.
Russell And Rate Sensitivity
Cowen attributes weakness in the Russell and other rate-sensitive stocks to elevated yields, while noting that either small caps could recover or the S&P could catch down.
Policy Uncertainty And Inflation
Elevated uncertainty and shifting expectations are driving volatile market pricing, while Cowen says the Fed may have cut rates too early before the conflict reignited inflation pressure.
Oil, Bitcoin And The Dollar
Cowen expects oil to keep rising until the conflict ends or a recession hits, favors weekly Bitcoin closes over daily moves, and sees the dollar strengthening toward 105–106.
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