Good morning, CFOs. Nick Timiraos on Iran’s impact on the Fed; the Iran war is hitting California hard; plus, why Wall Street is striking out on economic forecasts.

The Iran war has created a classic two-sided problem for the Fed, according to our chief economics correspondent and Fed watcher Nick Timiraos. The conflict has raised the risk of a serious economic downturn from price spikes and the resulting supply-chain disruptions. At the same time, higher prices threaten to reignite inflation, he told CFO Journal.

We sat down for Nick’s insights on what knock-on effects the war may have on markets—and the Fed officials whom Nick covers. The following is an edited version of our conversation.

What impact do you see the Iran war having on the Fed?

The Fed can't easily address the fallout of weaker growth with rate cuts without making inflation worse. Likewise, it won't want to raise rates to defend against higher inflation because that could deepen the hit to the labor market. The ceasefire announced this week, should it endure, removes the worst-case growth and inflation scenarios.

But it may not fully resolve the inflation risks. Energy and goods prices that rose during the conflict may only partially reverse their recent increases, and the Fed was already dealing with sticky inflation before the first missile flew. The net effect is that the war—and any resolution—has reinforced the case for the Fed to hold rates steady for an extended period.

What are the key concerns or priorities you are hearing from Fed officials?

The overriding concern is that the Fed has now absorbed four supply shocks in recent years: the pandemic, Russia's invasion of Ukraine, tariffs and now the energy price surge from the Iran conflict. Chair Jerome Powell said last week that a cascade of these shocks can erode the public's confidence that inflation will return to normal, which the Fed sees as potentially self-fulfilling. Minutes from the March meeting, released Wednesday, showed the vast majority of officials believed inflation progress could be slower than expected, driven by tariff effects that may linger, oil prices bleeding into underlying inflation, and the risk that years of above-target inflation have made consumers and businesses more accepting of further price increases.

Why is this story important for companies or company leaders to watch?

For one, it means borrowing costs are unlikely to come down anytime soon. Companies that have been thinking the Fed might continue to lower rates will need to plan around rates staying where they are, potentially well into next year. The inflationary pressures are also showing up directly in corporate costs. Leaders in any energy-intensive industry should be thinking about how to manage those costs without assuming relief is coming quickly.

What happens next?

The Fed's next meeting is April 28-29, and officials are almost certainly going to hold rates steady again. The bigger question is what happens in the second half of the year. If the ceasefire holds and energy prices drift lower, the inflation picture could improve enough by late 2026 to reopen the door to cuts.

But the bar is higher than it was six months ago, which means the Fed may be less comfortable trying to preempt a labor-market slowdown, as officials did in 2024 and 2025. Officials will be watching whether the inflationary echoes of the war fade or whether they become embedded in business pricing and consumer expectations.

For more coverage, read on below.

• Why Fed Rate-Cut Prospects Have Dimmed, With or Without a Cease-Fire
• Oil CEOs Raked In Money From Trump’s Iran War

📈 Economic Indicators

The Bureau of Economic Analysis releases the personal consumption expenditures price index for February.

The BEA releases its final estimate for fourth-quarter gross-domestic-product growth.

Comments on the semi-annual reporting proposal continue to come in. Today we hear from the finance chief at Protolabs, the Minneapolis-based provider of digital manufacturing services.

✏️ Help us continue the conversation. Do you think the U.S. will shift to semi-annual reporting, and how would that change your role? (Hit Reply to this newsletter, and we may feature your comments.)

U.S. cease-fire with Iran. Our colleague Collin Eaton reports that the Iran war is hitting California harder than any other state; California imports roughly 75% of its crude oil, almost one-third of which comes from the Middle East. Here’s what else is happening in the Strait of Hormuz since the cease-fire.

Air travel impacts. Get ready for more bag fees and fuel surcharges. The New York Times reports that U.S. and Canadian airlines, squeezed by surging fuel costs from the war in Iran, are adding “sticky” new bag fees and surcharges, on top of higher fares. Delta Air Lines, United Airlines and JetBlue have all recently announced recent baggage-fee increases.

Meta Platforms announces new AI model. Meta has a new large language model, its first major new artificial-intelligence model in more than a year. Called Muse Spark, the model comes at a critical moment for Meta, which has spent billions of dollars hiring AI talent in a bid to catch up to OpenAI, Anthropic and Google DeepMind.

“I don’t think forecasting the headline labor market numbers has been this challenging at any point of my career,” said Jonathan Pingle, a UBS economist who has tracked monthly economics statistics for more than 20 years, as reported by Matt Grossman.

He’s not alone. So far this year, there have been a number of big analyst misses, as they are adjusting to more volatility and geopolitical uncertainty.

For those keeping score: In January, forecasters’ consensus vastly undershot the net gain of 130,000 jobs that the Labor Department initially reported. Then in February, with economists expecting further steady gains, they were wrong-footed by sharp job losses, which partially reflected bad weather and a big healthcare strike. March brought another whiff, when forecasters were counting on moderate job gains and wound up blindsided by a blowout increase.

What’s next? Economists’ next chance to forecast a marquee stat comes on Friday in March’s inflation figures. The Journal’s consensus forecast projects that consumer prices rose by 0.9% last month, a big jump caused by the Iran war’s jolt to energy prices from a 0.3% increase in February.

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Arxis, the Bloomfield, Conn.-based maker of electronic and mechanical engineered components, unveiled terms of a planned IPO that could give the company an initial market capitalization topping $11 billion. Arxis on Wednesday said it plans to sell more than 37.7 million shares at between $25 and $28 apiece in the IPO.

At the $26.50 midpoint of that range, the company owned by buyout firm Arcline Investment Management said it expects net proceeds of about $930 million, or roughly $1.07 billion if the underwriters exercise an option to buy an additional 5.66 million shares.

Nashville, Tenn.-based Arcline, with more than $20 billion in assets under management, will still hold about 99% of the voting power of Arxis, which was built through the acquisition and integration of more than 30 companies since 2019. Arxis said it has applied to list its shares on the Nasdaq Global Select Market under the symbol ARXS.

—Colin Kellaher contributed to today’s Ledger.

📰 Other headlines

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• Paramount President Jeff Shell Leaving Amid Lawsuit
• Genes May Predict How Much You’ll Lose on a Weight-Loss Drug
• Delta’s Ace in the Hole for Surging Jet Fuel Costs: Its Own Refinery
• The Dealmaking Gamble Threatening Estée Lauder’s Turnaround
• What’s Next for the U.S. Economy After Iran Cease-Fire
• Eurozone Retail Sales Fell Ahead of Iran War Energy-Price Surge
• U.S. Crude Oil Stockpiles Rise for Seventh Straight Week
• Upstarts Have Long Tried to Disrupt the U.S. Auto Market. Few Have Succeeded.

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The Securities and Exchange Commission, the U.S. securities regulator, said it appointed David Woodcock as its new director of the enforcement division, effective May 4. Woodcock succeeds Judge Margaret Ryan, who resigned last month after six months in the role. Woodcock is a partner at law firm Gibson, Dunn & Crutcher, where he serves as chair of the securities enforcement practice group. He was the director of the SEC’s Fort Worth, Texas-based regional office from 2011 to 2015.

Irving, Texas-based Caterpillar appointed Kyle Epley as CFO, effective May 1. Epley, a veteran of the construction equipment company, will succeed Andrew Bonfield, who will transition to an advisory role before retiring Oct. 1, Caterpillar said Wednesday. Epley brings nearly three decades of experience to the role, the company said. He is currently senior vice president of global finance services and previously worked as division CFO and corporate controller. Bonfield has been CFO of Caterpillar since 2018.

—Mark Maurer and Chris Kuo contributed to today’s Ledger.

The Wall Street Journal's CFO Journal offers corporate leaders and professionals CFO analysis, advice and commentary to make informed decisions. We cover topics including corporate tax, accounting, regulation, capital markets, management and strategy.

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