If the macro economy were a movie this week, the plot would feature three protagonists: geopolitics, artificial intelligence and the American consumer. The twist is that each storyline is pulling the economy in a slightly different direction. Oil prices are rising because of the Iran conflict, AI investment continues to surge and the consumer (despite grumbling loudly) keeps spending. In other words, the macro picture remains resilient… but the margin for error is getting thinner. As economists often say: the economy can absorb shocks, just not an unlimited subscription to them.

Executive Summary

• Energy is the new macro shock. The conflict with Iran is pushing oil and gasoline prices higher, creating a near-term inflation bump and a drag on consumer purchasing power.
• The consumer remains resilient… for now. Spending and incomes entered the shock from a position of strength, although higher fuel costs will disproportionately impact lower-income households.
• The AI investment cycle continues. Demand for computers, semiconductors and data-center infrastructure remains a major driver of business investment and trade flows.
• Labor markets remain stable but softening. Hiring remains weak, though layoffs remain low, maintaining a “low-hire, low-fire” equilibrium.
• The Fed likely stays on hold. Policymakers appear inclined to look through the temporary inflation spike from energy and focus instead on potential labor-market weakness.

The Energy Shock Returns
The dominant macro development this week is the growing economic impact of the US–Iran conflict and the resulting energy shock. Oil supply disruptions tied to the conflict are already pushing gasoline prices higher, which economists estimate could add 0.3–0.5 percentage points to CPI in March alone. Gasoline prices have already jumped from roughly $3 per gallon last month to about $3.65, with projections suggesting prices could approach $4 per gallon in the near term.

From a macro perspective, the impact is straightforward:

• Higher energy prices boost inflation.
• Higher gasoline costs reduce real disposable income.
• Reduced real income slows consumption growth.

In fact, economists warn that oil prices above $100 per barrel could meaningfully weaken consumer spending growth this year, potentially offsetting the fiscal stimulus from larger tax refunds. This places the Federal Reserve in a difficult position: inflation rises while growth slows (throw in high unemployment and you would have “stagflation”), an economic situation sometimes described as the macro equivalent of being asked to drive with one foot on the brake and the other on the gas.

• Key Takeaway: Energy shocks do not typically cause recessions on their own, but they often determine how resilient the economy is to everything else.

The Consumer: Complaining Loudly, Spending Anyway
Despite rising pessimism in surveys, the U.S. consumer remains surprisingly resilient. Consumer sentiment declined in March from 56.6 to 55.5, reflecting growing pessimism about personal finances and the economic outlook. That said, sentiment and spending have become increasingly disconnected in recent years. Economists still expect consumption growth of roughly 2.4% in 2026, supported by income growth and tax refunds.

Indeed, the latest income and spending data suggest the consumer entered the energy shock on relatively solid footing:

• Personal income rose 0.4% in January.
• Consumer spending also rose 0.4%, driven primarily by services spending.

Another important cushion comes from tax refunds. Aggregate refunds issued so far this year total $160.8 billion, roughly 11% higher than the same period last year. But the consumer story is increasingly bifurcated. Higher-income households, who account for most consumption, remain supported by income growth and financial wealth. Meanwhile, lower-income households are more exposed to rising gasoline prices, which represent a larger share of their spending.

• Key Takeaway: The U.S. consumer is still carrying the economy, but the weight of that responsibility is increasingly concentrated among higher-income households.

The AI Economy: Quietly Driving Trade and Investment
While geopolitics dominates headlines, a quieter but equally powerful macro trend continues to unfold: the AI investment cycle. Trade data reveals that demand for AI-related capital goods, including computers, semiconductors and related equipment, is reshaping global trade patterns.

In January:

• The U.S. trade deficit narrowed to $54 billion from $70 billion.
• Exports rose sharply, while imports declined overall.

Yet beneath the headline numbers lies a striking divergence: over the past year, imports of capital goods, which include computers, semiconductors and accessories have risen 25%, while all other imports have fallen 31%.

Similarly, business investment data shows the AI build-out continuing to support orders for computers and electronic products even as other categories soften. Business equipment investment is currently tracking around 3.2% annualized growth in Q1, reflecting steady, but moderating, capital spending. In short, the AI infrastructure cycle, data centers, chips, servers and power infrastructure, is becoming one of the most important drivers of capital investment in the US economy. Or put differently: if the last decade was defined by smartphones and streaming, this one may be defined by GPUs and gigawatts.

• Key Takeaway: AI investment is becoming a structural growth driver for the U.S. economy, reshaping trade flows and sustaining business investment.

Labor Markets: The “Low-Hire, Low-Fire” Economy
The labor market remains stable, but it is gradually cooling. Recent data suggests hiring remains subdued while layoffs remain low. This is the dynamic we have previously described as a “low-hire, low-fire” balance. Jobless claims have continued to trend modestly lower in recent months, and layoffs have declined slightly according to the Job Openings and Labor Turnover Survey. However, revisions to employment data suggest job growth may have been weaker than previously reported. Administrative employment data indicates employment was only 123,000 higher year-over-year in September 2025, suggesting potential downward revisions to payroll estimates. Meanwhile, structural factors, particularly slower labor force growth tied to tighter immigration policy and demographics, may help keep unemployment relatively stable even with modest job creation.

• Key Takeaway: The labor market is not collapsing, but it is gradually cooling, which helps explain why the Federal Reserve is watching employment risks more closely than inflation spikes.

Inflation and the Fed: A Pause in a Storm
For the Federal Reserve, the current environment is unusually complicated. The energy shock will likely push headline inflation higher in the near term, but underlying inflation pressures appear more contained than during the 2022 energy shock. Housing disinflation, improved supply chains and stronger productivity growth all suggest that the broader inflation backdrop is less concerning than in previous cycles. As a result, policymakers are likely to remain on hold while monitoring the balance between inflation and labor-market risks. In other words, the Fed appears prepared to “look through” the oil-driven inflation spike unless it begins to feed into inflation expectations or wage growth.

• Key Takeaway: The Fed’s reaction function is shifting from inflation fear to labor-market vigilance.

Final Thoughts: The Economy Is Resilient, But Not Invincible
The macro landscape today is defined by a fascinating tension between cyclical shocks and structural growth.

On one side:

• Geopolitical risk is pushing energy prices higher.
• Consumer sentiment is deteriorating.
• Business uncertainty is rising.

On the other:

• AI investment remains robust.
• The consumer remains resilient.
• The labor market remains stable.

The result is an economy that continues to grow, but with less margin for error. As investors, the key lesson is that economic expansions rarely end because of one shock alone. They end when multiple pressures compound at the same time. For now, the U.S. economy appears capable of absorbing the energy shock. But if oil prices remain elevated, sentiment continues to weaken and investment slows, the macro story could shift from resilience to vulnerability more quickly than markets expect. In short, the expansion remains intact, but geopolitics has made the path forward more precarious.

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