The 'Lame Duck' Fed's Inflation Signal

The central bank holds rates steady and projects higher inflation... Jerome Powell's parting lesson... New energy attacks in Iran... AI and the labor market... Youth unemployment keeps rising... Where to find jobs...

The Fed holds steady – for now...

This afternoon, the Federal Reserve finished its latest two-day policy meeting. As widely expected, the central bank held its benchmark federal-funds rate range steady between 3.5% and 3.75%.

There was one dissenter – Stephen Miran – whom President Donald Trump appointed to the policy-setting Federal Open Market Committee ("FOMC") late last year. Miran has consistently stumped for significantly lower interest rates, but "only" voted for a 25-basis-point rate cut this time.

The 19 Fed members also released their quarterly economic projections and outlook for the rest of the year.

Expectations for real GDP in 2026 ticked up a tenth of a percentage point to 2.4%, and unemployment projections rose by a tenth to 4.4%.

Most notably, the central bankers projected inflation to be 2.7% in the rest of 2026, up from the 2.4% they thought last December. And they are projecting only one 25-basis-point cut for the rest of the year.

Why?

Well, Fed Chair Jerome Powell shared one reason in a post-meeting press conference today: "The implications of developments in the Middle East for the U.S. economy are uncertain."

In another time, the market may have reacted violently to this outlook. While stocks moved lower as Powell spoke, and the benchmark S&P 500 Index closed down 1.3%, the indexes were already lower before the press conference. And they didn't fall as much as we've seen in the past following less meaty comments from the Fed.

Frankly, we're not surprised, since the messaging has been that Powell is a "lame duck."

Trump has nominated Kevin Warsh to succeed Powell as Fed chair in May. So barring a delay in Warsh's confirmation, this was Powell's second-to-last policy meeting before his term as chair ends. (It should be noted, Powell said he would stay on as chair if there is a delay.)

Be it for personal reasons (like the Trump administration threatening to investigate Powell) or legitimate policy reasons (like balancing inflation and employment risks), we're not expecting a Powell-led Fed to make significant moves in the months ahead.

As Powell told reporters today, he feels that the Fed already lowered its fed-funds rate to a level that's plausibly "neutral" in December, and that's the right place for policy today…

This normalization of our policy stance should continue to help stabilize the labor market while allowing inflation to resume its downward trend toward 2%.

But Powell acknowledged the risks ahead. He said that "higher energy prices" given the war in Iran "will push up overall inflation." In short, Powell's parting warning is to always remember inflation…

We're well aware of the performance of inflation over the last few years and how a series of shocks have interrupted progress [on inflation] that we've made over time...

Later in the press conference, Powell said it again in a different way...

We had the tariff shock, the pandemic, and now we have an energy shock of some size and duration. We don't know what that will be actually... You worry that that is the kind of thing that can cause trouble for inflation expectations.

And inflation "trouble" is exactly what could be around the next corner...

Warsh is assuredly going to be asked by Trump to lower interest rates, just like Trump has demanded that Powell lower rates. But it's much harder to justify a lower-interest-rate environment now than it was a year ago.

The war in Iran continues...

Oil prices were higher again today as the war in Iran escalated. Brent crude, the international benchmark, rose by around 6% to $109 per barrel. And West Texas Intermediate was up 2% to $98 per barrel.

So what happened? Israel attacked a natural gas infrastructure in Iran, according to both Israeli and Iranian media... and the Iranian Republic threatened to respond with like-minded attacks in Qatar, Saudi Arabia, and the United Arab Emirates.

Meanwhile, the White House moved to waive enforcement of the Jones Act for 60 days – a law that requires transport of U.S. goods to be conducted by only U.S. vessels.

But that didn't appease investors.

This sets up a crossroads for the market...

The war in Iran has changed the calculus for inflation expectations. Prices of energy and other critical commodities are up substantially in just a few weeks. Those numbers and their consequences will begin to show up in various economic data soon enough.

And the inflation baseline is already trending up. The producer price index ("PPI") report for February, for example, showed 0.7% growth for the month, and a 3.4% annualized gain, well above the Fed's supposed 2% target.

As we noted yesterday, ideas of a "higher for longer" interest-rate environment have emerged in the bond market (again) as high(er) inflation concerns have emerged (again).

At the same time, the U.S. unemployment rate has trended higher since early 2023 and most recently checked in at 4.4%.

No matter who is leading the Fed or what it does next, the central bank can't "fix" inflation and the labor market simultaneously.

If rates are cut this year, the pace of inflation could take off even higher. But rate hikes, in addition to being a "surprise" for many in the market, could slow a labor market that already has its challenges.

As we said above, the stock market hasn't made a major move yet tied to higher inflation expectations. Be prepared for it to happen.

The latest on AI and jobs...

Earlier this month, we noted that AI is becoming a scapegoat for the rising number of layoffs in the U.S.

While the share of layoffs attributed to AI has grown, it's still only the fifth-largest reason for folks losing their jobs, according to consulting firm Challenger, Gray & Christmas.

As we shared in our March 5 edition...

So far this year, businesses have cited AI as the reason behind 12,304 layoffs. That's well behind the number of jobs lost due to "market and economic conditions," which leads the way in 2026 with 38,506 cuts.

But we're still seeing companies name "AI" in layoff announcements...

For example, this week, software firm Atlassian (TEAM) laid off 10% of its workforce, or about 1,600 employees. And the firm is shifting money from paying salaries to other areas of the business. As the company explained in a blog post...

We are doing this to self-fund further investment in AI and enterprise sales, while strengthening our financial profile.

And late last week, Reuters reported that Meta Platforms (META) plans to lay off 20% or more of its employees to offset its $125 billion in AI-related capital expenditures this year.

While both of these announcements may be attributed to AI developments, the workers' roles aren't directly and immediately being replaced by AI. Instead, the companies are reallocating resources toward continued AI spending in the hopes of seeing the technology pay off for them in the future.

AI is also slowing new hiring...

That's especially true at the entry level. We've noted in the past how Dario Amodei, CEO of AI company Anthropic, has predicted AI will push unemployment much higher. From the November 18 Digest...

In the past, Amodei has said that AI could push the unemployment rate to 10% to 20% within the next five years. And he has also said that AI could wipe out half of all entry-level jobs.

He's not the only one who thinks this could happen...

In an interview with CNBC last week, Bill McDermott, CEO of workflow-management software firm ServiceNow (NOW), said unemployment for recent college graduates could go above 30% within the next few years as AI agents replace entry-level positions.

That's a long way from where we are today, but it's clear that the labor market is worse off for young, entry-level workers right now than in the past. And it has been trending that way over the past two years.

At the end of 2025, the unemployment rate for recent college graduates aged 22 to 27 was 5.7%, according to the New York Federal Reserve. And for all "young workers" in that age range (regardless of education level), the unemployment rate was 7.8% – the highest level since mid-2021.

Both of those readings are well above the unemployment rate for all college graduates – at 3.1%. And that may accelerate in the coming years with AI becoming a bigger focus for companies.

It may be a good time to learn a trade...

Back in December, we wrote that there's a skilled labor shortage. And we received a lot of feedback on the subject in our mailbag. As Dr. David "Doc" Eifrig described in his December issue of Retirement Millionaire, our labor market faces a "blue collar bottleneck."

From that issue...

We need people who work with their hands.

We're talking about electricians, pipe fitters, welders, mechanical specialists, and heating, ventilation, and air-conditioning ("HVAC") technicians.

Knowing programming languages like Python and SQL is all well and good. But factories are building things... Data centers are running hot... Hospitals need to stay online. And America is running out of people who know how to wire a power system... braze a pipe... or troubleshoot a chiller that's throwing off alarms at 3 a.m.

That's still the case today. Sander van't Noordende, CEO of recruiting firm Randstad, recently said in an interview with CNBC that there still isn't enough skilled labor to meet demand from the AI boom. As he said...

Ultimately, the real constraint on global tech growth isn't solely related to a shortage of microchips, energy, or capital; it is the severe scarcity of the specialized talent required to build it.

Noordende added that demand for robotic technicians has more than doubled from 2022 to today, while demand for HVAC systems engineers has jumped more than 60% over the same period. As we've said before, AI can't build and maintain data centers.

This shift in the labor market can also be an investment opportunity. In the December issue, Doc and his team found a company that's in a great spot to take advantage of this change.

It controls one of the nation's largest, most experienced mechanical and electrical workforces – the labor demographic that's soaring because of data-center construction.

Doc's pick is already up 17% in a little more than three months while the S&P 500 Index is down about 2% over the same period. And the recommendation is still a "strong buy" in the Retirement Millionaire model portfolio today.

Retirement Millionaire subscribers and Stansberry Alliance members can read the December issue right here. And if you don't have access to Retirement Millionaire, click here for more information and to get started today.

New 52-week highs (as of 3/17/26): BAE Systems (BAESY), BP (BP), Chord Energy (CHRD), Ciena (CIEN), Simplify Managed Futures Strategy Fund (CTA), Coterra Energy (CTRA), Chevron (CVX), EOG Resources (EOG), Equinor (EQNR), Liberty Energy (LBRT), Magnolia Oil & Gas (MGY), Marathon Petroleum (MPC), Matador Resources (MTDR), Tenaris (TS), Valaris (VAL), Valero Energy (VLO), State Street Energy Select Sector SPDR Fund (XLE), and ExxonMobil (XOM).

In today's mailbag, thoughts on war and what happens after it... and feedback on tweaks you may have noticed in our e-mails... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"First, Trump is spending money like a drunken sailor. I am much closer to 80 years than 70. Maybe I am a fool, but national debt will matter suddenly but I will leave it up to the 'master class' of experts.

"Second, we fought in Vietnam and lost around 60k soldiers in battle and then probably tens of thousands with PTSD afterwards. We withdrew and 20 years later Pres Clinton began a controversial reopening of relations with Vietnam.

"Perhaps he realized that the Vietnamese were not sailing and flying over the Pacific to make war on our shores. We left a battle-scarred area in Vietnam, Laos and Cambodia with some tragic consequences in that area.

"Thirty years after Clinton's reopening, the public should be aware of our current relationship with Vietnam and how it was achieved – through military action or through diplomacy, trade, and tourism (even by veterans)?

"Sen John McCain at one time advocated weaponizing Vietnam since they shared a common foreign policy concern on China and its expansion. This relationship was NOT predicted between Vietnam and USA and the other countries in the area.

"What we had on BOTH sides was a complete change of leadership over time. Now Vietnam had a trade surplus with us of over $150 billion last year.

"The Ukrainian debacle is following the same parallel propaganda of Russia marching through Eastern Europe and into Western Europe. It is not going to happen... The factors that led us to our current Vietnamese relationship will happen with Russia when both sides change leadership over time...

"Now we are involved in Iran with unclear goals..." – Subscriber R.T.

"I really appreciate the new font – so much easier to read, especially for these 75-year-old eyes!" – Subscriber Dave H.

Corey McLaughlin comment: Dave, happy to hear you like the change.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
March 18, 2026

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