Oil Volatility and Slowing Growth Complicate the Economic Outlook

Matthew Rubin Chief Investment Officer

 

1. Oil prices mostly stayed below $100 last week, but markets remain volatile amid ongoing attacks and supply constraints in the Middle East.²
2. The sharp rise in oil prices is expected to impact inflation, which has been relatively stable.
3. Revised GDP data showed a decline in Q4 growth to 0.7% as the previous government shutdown disrupted spending and investment.³

 

1. Oil Prices Stay Below $100 but Volatility Surges After Supply Disruptions

Oil markets faced another turbulent stretch last week as attacks on commercial vessels in the Middle East drove renewed concerns about global supply. Several tankers were struck near the Strait of Hormuz, sharply disrupting one of the world’s most important shipping lanes. In response, the International Energy Agency proceeded with the largest emergency stock release in its history, committing 400 million barrels from member reserves.¹ The United States also announced it would contribute 172 million barrels from its Strategic Petroleum Reserve, part of a coordinated effort to stabilize markets.¹

Despite these actions, traders expressed concerns that emergency reserves could not offset the steep drop in regional output and the near-complete halt in tanker traffic. Prices briefly climbed above $100 before easing back below this level, reflecting the market’s struggle to balance disrupted supply with temporary relief from reserves.²

The duration of the conflict remains the key factor. Past geopolitical shocks often caused short‑lived price spikes, but considering the heavy reliance on the Strait of Hormuz for global oil flows, the current disruption is unusually significant. Markets will continue to watch for any signs of de‑escalation as volatility persists.

2. February Inflation Holds Steady as Rising Oil Prices Shift the Outlook

February’s Consumer Price Index reading aligned with expectations. Headline inflation increased 0.3% for the month, while core inflation rose 0.2%.³ Some components, including cooling shelter costs, showed improvement and eased pressure from earlier increases in goods prices linked to last year’s tariff changes.

Over the past week, however, the surging price of oil threatened the broader inflation picture. The March inflation report will reflect that increase, likely pushing headline inflation higher for a short period. As a result, oil market volatility is likely to disrupt the progress made on inflation, which has been gradually declining toward the Federal Reserve’s 2% target.¹

Market expectations still point to a decline in oil prices later in the year, suggesting the current shock may prove temporary. Yet the near‑term inflation setback increases the likelihood that interest rates will remain unchanged. Based on current trends, any potential rate cuts may not materialize until later in 2026.

3. Late‑2025 Growth Slows as Revised GDP Data Reflect Shutdown Impact

Revised economic data released last week showed that U.S. growth in the final months of 2025 was weaker than first reported. Gross domestic product rose at a 0.7% annual rate, down from the earlier estimate of 1.4%.³ The downgrade reflected a sharper pullback in government spending, alongside softer consumer activity and reduced business investment.

Consumer spending, which had been a steady source of support earlier in 2025, was revised downward from a 2.4% increase to 2.0%.⁴ Many households reduced their spending as hundreds of thousands of federal workers missed more than a month of pay during the shutdown. Business investment outside of housing was also adjusted lower, rising 2.2% instead of 3.7%. Slower inventory accumulation added further drag.⁴

Fourth quarter inflation ran at a 2.9% annual rate, remaining above the Federal Reserve’s 2% target.⁴ Despite the weak finish to the year, growth is expected to rebound, supported by the reopening of the government, larger tax refunds, and increased military outlays. Early estimates suggest first‑quarter GDP could reach a 2.7% pace, although uncertainty tied to the developing conflict abroad continues to cloud the outlook.⁴

For the period ending 3/13/26.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Bloomberg
² FactSet
³ U.S. Bureau of Labor Statistics
⁴ Morningstar

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