More pain at the pump is coming

Note: As always, there was a separate Economic Commentary discussing the monthly jobs report published on March 6^th. 

Trend watch

In typical spring break fashion, weekly air passenger counts in the U.S. increased 2.0% in the past seven days, eclipsing to 16.6 million. If it follows the usual seasonal pattern, passenger counts should continue to climb for the remainder of March and early April, plateau in mid-April until the first full week of May. Thereafter, summer traffic starts.

Additionally, crude oil prices have surged in global commodities markets following the Iran conflict, which temporary halted oil tanker traffic in the  Persian Gulf. U.S. gasoline prices have jumped 11% in the past week, which we show on slide 7 (available to clients in the full report). 

Our take

As the title says, pain at the pump is coming given the 40% spike in crude oil prices, or more than a $25 per barrel increase in the past week. It’s important to note that while the U.S. gets over 90% of our crude oil from North America, crude oil prices are set on global markets based on the global supply and demand dynamics.

Arguably, its already here as U.S. national average for gasoline is up 11%. Our base case is that the Iran conflict will be resolved quickly. Thus, while there’s likely more pain to come, we expect that U.S. gasoline should recoil in the coming months.

While we aren’t overly concerned, the direction of inflation has clearly shifted and is no longer grinding lower. Indeed, in our 2026 outlook, we anticipated that inflation would remain stickier. Indeed, in recent months, inflation has risen on both the consumer and wholesale fronts. The new Iranian conflict threatens to inflame inflationary pressures. 

If this inflation trend persists, it will pose a rather large hurdle for the Fed to lower interest rates later this spring. At the very least, it would push rate cuts further back in the year. In a worst-case scenario, if inflation continues heating up – it could thwart rate cuts all together in 2026. However, it’s very premature to make that leap based on the current trend. Given the near-term uptick in inflation and the risk for more, we expect the Federal Reserve to stay on hold in the near term and maintain our view for a summer rate cut.

Retail sales dipped in January due to softer auto and gasoline sales. But we already know – based on other independent data – that both of those trends will reverse during February.

In response to questions involving the role of Artificial Intelligence (AI) in the inconsistent hiring – our answer is “not yet.” We find very little credible evidence that AI is causing job losses (yet).

While there has been a real spurt in productivity, we believe that is mostly the result of the post-COVID Great Resignation, whereby millions of workers caused a massive skill resorting across the economy. While it takes a few months for entry-level workers to get up to speed, it takes much longer for mid-career knowledge workers to hit their stride—perhaps 6 to 8 quarters or longer. That lines up with the burst of productivity that began mid-2023 and has persisted through 2025.

Yet, many companies are using AI as cover for recent layoffs. Perhaps it’s the corporate response to other post-COVID employment trend – “quiet quitting.”

On positive side, personal tax refunds are running more than 10% above last year, which should help bolster consumers. That’s after just three weeks of tax returns; we anticipate that pace should at least triple in the next month. Much larger tax refunds was one of the economic catalysts we highlighted in our annual outlook.

Bottom line

We’ve described the U.S. economy as feeling like it has one foot on the gas (fiscal and monetary stimulus) and one foot on the brake (trade and tariff uncertainty, underwhelming job growth). Included in the persistent “low hire/low fire” environment. This muddled backdrop likely keeps the Federal Reserve in a holding pattern in the near term after last year’s pre-emptive rate cuts.