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Fed’s Barkin Says Iran War Is Raising Economic Uncertainty
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- Richmond Fed President Thomas Barkin said the Iran war complicates the economic outlook, posing risks for inflation and consumer demand.
- Barkin stated holding interest rates steady in March was prudent due to elevated uncertainty and a foggy outlook.
- Barkin noted rising inflation, measured by the PCE price index, and a “fragile” labor market with near-zero job growth.
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Bank of Japan Sees Natural Rate Gradually Rising, Signaling Room for Hikes
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- The Bank of Japan said the nation’s natural interest rate is gradually rising, suggesting room for further monetary tightening.
- The BOJ’s estimate for the natural interest rate was -0.9% to +0.5% as of the July-September quarter of 2025.
- Other BOJ data, including a 2.2% underlying consumer inflation in February, support the bank’s rate-hike path.
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EU Finance Ministers Tally Economic Hit of Iran War
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- Eurozone finance ministers raised inflation expectations and lowered growth expectations for 2026 due to the Iran war.
- Valdis Dombrovskis, European Commission’s economy chief, warned of a “stagflationary shock” risk for the eurozone.
- Stagflation occurs when slower growth coincides with a period of higher inflation.
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Fed’s Paulson Says Policy Credibility Needed for Economic Growth to Flourish
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- Philadelphia Fed President Anna Paulson stated monetary policy credibility is crucial for lowering inflation and fostering economic growth.
- Paulson noted the Federal Reserve is in a different position than the 1990s, with inflation above 2% for six years.
- Paulson said if growth is productivity-driven by AI, monetary policy adjustments may not be needed, but inflationary pressures could rise otherwise.
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Consumer Sentiment Declined in March, Michigan Survey Shows
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- The University of Michigan’s consumer sentiment index fell to 53.3 in March, driven by the Iran war and rising gasoline prices.
- Gasoline prices averaged $3.978 nationally, up about 33% versus a month ago, according to AAA data.
- Consumers’ expectations for inflation over the next year increased, but longer-run forecasts remained moderate.
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Spain’s Inflation Jumps on Iran War
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- Spain’s inflation rate neared a two-year high in March, rising to 3.3% due to higher fuel and lubricant prices.
- The Bank of Spain revised its 2026 inflation expectation to 3.0% from 2.1%, concerning the European Central Bank.
- Eurozone inflation is now expected to average 2.6% this year, up from 1.9%, according to OECD forecasts.
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