February CPI: Disinflation Loses Traction as Energy Shock Emerges

February’s CPI report may already feel like old news with oil prices up roughly 25% since the end of last month. Yet the February data showed that the disinflationary momentum exhibited since last summer is proving hard to maintain. Headline inflation rose 0.3% in February, leaving the year-over-year rate at 2.4% but pushing the more recent three-month pace up to 3.0%.

• Energy prices rose 0.6% in February, essentially in line with our forecast. Oil and gas prices were already rising in February in anticipation of a conflict in the Middle East, underpinning the solid 1.1% gain in energy goods during the month. Assuming the cost of regular gas averages $3.65 per gallon for the rest of this month, we estimate energy goods will rise a more jarring ~18% in March.

• Food prices came in hotter than expected in February. Grocery store prices rose 0.4%, flattered by a robust gain in fruits and vegetables pricing. On a year-over-year basis, food at home strengthened to 2.4%, drifting further away from the trends in food-related commodity and producer price measures of foods that have been receding. (…)

• The core CPI rose 0.22% in February, more or less in line with our projections for a 0.19% increase. Core goods came in slightly softer than we expected. This was largely a vehicles story, with used autos prices dropping 0.4% and new vehicle prices flat in the month. Core goods ex-autos, which probably better captures the pass-through to inflation from tariffs, rose 0.22%, a bit stronger than we were forecasting. Apparel prices jumped 1.3%, the highest reading since September 2018. The February data showed a similar month-on-month rise in tariff-related categories including recreation goods (+0.4%), motor vehicle parts & equipment (+0.4%) and household furnishings (+0.2%). (…)

• Core services advanced 0.3% in February, slightly stronger than anticipated. The beat stemmed from travel-related services, which rose 1% over the month and continued a three-month streak of solid gains, and a sizable gain in medical services (+0.6%). Elsewhere, primary shelter moderated a touch, as rental costs rose only 0.1% over the month, the lowest since 2021. Spot measures of rents have been soft for a while now and suggest the CPI’s measure of shelter has a little more room to moderate this year.

• The stubborn picture of overall inflation has been even more apparent when viewed through the lens of the PCE deflator. While more input details will be made available tomorrow with the February’s PPI release, today’s data point to another robust increase in PCE inflation. We currently estimate both headline and core PCE will rise a “low” 0.4% in February, with higher weightings in the PCE index for some goods components being a key source of the PCE’s persistent strength of late.

• For the FOMC, today’s report is probably a little bit more dated than is typically the case for a CPI print, with policymakers’ primary focus on the uncertain outlook for energy prices and the broader inflation outlook in light of the developing conflict with Iran. On balance, today’s inflation data probably does little to sway the hawks, doves and undecideds one way or the other. We published an updated U.S. economic forecast and fed funds rate outlook in a separate report this morning. Our forecast remains for two 25 bps rate cuts from the FOMC at the June and September meetings, followed by an extended hold at 3.00%-3.25%.

 

• EU Warns Iran Conflict Could Push Bloc’s Inflation Above 3% Under such a scenario, economic growth in 2026 would also take a hit.
• Global Bonds Erase 2026 Gains as War Fuels Inflation Angst

“A PLAN FOR EVERYTHING”

Escalating Hormuz Crisis Raises Specter of Prolonged Closure

Escalating Iranian attacks and the U.S. government’s decision to hold off on military escorts for oil tankers through the Strait of Hormuz are raising the prospect of a prolonged closure that would choke off exports through the world’s most important energy-transport route.

On Wednesday, the Islamic Revolutionary Guard Corps struck three cargo ships attempting to transit the waterway, the only sea route out of the Persian Gulf. It warned that any other vessels trying to move through the strait also would be targeted. (…)

The U.S. has turned down repeated requests for tanker escorts from oil companies, said officials from Gulf countries. Defense officials say it is too risky to send warships into the confined waters of the strait—which is about 21 miles wide at its narrowest point—until the risks of Iranian fire have receded. (…)

Iran is still landing blows. Added to that are the risks of naval mines and Iranian submarines lurking below.

With traffic paralyzed as a result, the shutdown of the strait is fast causing a global economic disruption and a major military and political challenge for the Trump administration.

Shippers were bracing for an extended shutdown of the waterway, where traffic could take a long time to recover even after the conflict ends.

“It will take time. Not only do we need hostilities to stop, but also shipowners to perceive that the risk to the people on board and to the ships has been materially reduced,” said Jerry Kalogiratos, chief executive of Athens-based Capital Clean Energy Carriers, which transports liquefied natural gas. “Think about the Red Sea: Six months after the Houthis stopped the attacks, and traffic has not normalized,” he said, referring to Yemen’s Iran-backed militants. “It’s all about perception of safety. And we are far away from that.” (…)

The chief executive of the Saudi state oil company Saudi Aramco, Amin Nasser, warned Tuesday that a prolonged closure of the Strait of Hormuz would cause “catastrophic consequences for the world’s oil markets” and seriously disrupt the global economy.

That is what Tehran is counting on, as it struggles to respond militarily to the U.S. and Israeli bombing campaign now in its second week. “9 days into Operation Epic Mistake, oil prices have doubled while all commodities are skyrocketing,” Iranian Foreign Minister Abbas Araghchi said in a social-media post Monday. (…)

White House deputy press secretary Anna Kelly said the president “is fully prepared to provide U.S. Navy escorts through the Strait of Hormuz if he deems it necessary.”

Navy officials, however, said they have haven’t been told to provide escorts and said that doing so currently would pose enormous risks to U.S. warships and commercial vessels. One official said the Strait of Hormuz could become an Iranian “kill box” if ships start trying to pass through. (…)

In addition to being difficult and dangerous, military escorts in the Persian Gulf would only allow a trickle of ships through at any one time, said military and shipping-industry analysts. (…)

“Some of them are saying, if there are still attacks and a live war going on, they’re not going to risk it either way,” said Bridget Diakun, a senior risk and compliance analyst at Lloyd’s List Intelligence in London. (…)

• U.S. Plan to Unblock Strait of Hormuz Collides With Realities of Global Insurance

President Trump’s plan to sell insurance for ships in the Gulf, a way of easing the war-induced crunch in oil supplies, is proving easier said than done.

The effort was designed to help “ensure the free flow of energy to the world,” Trump said in a social-media post last week. The U.S. would provide, at a very reasonable price, political risk insurance for all shipping, backed if necessary by U.S. Navy escorts, he said. (…)

Another reality is that the insurance safety net doesn’t address the core reason ships aren’t sailing, according to shipowners and insurance brokers.

“It’s more about the safety of the crews rather than taking on insurance for damages,” said Jerry Kalogiratos, Chief Executive of Capital Clean Energy Carriers, which runs more than 20 LNG carriers.

Insurance for ships in the region is readily available, with offers being made but not taken up, according to brokers. “Lloyd’s is open for business,” said Marcus Baker, global head of marine and cargo at insurance broker Marsh. (…)

• “Shutting the Strait is bad for Iran as well, or course. But it is their critical source of leverage (rather like China’s control of rare earths in negotiations over US tariffs). They have abundant desire not to surrender, or their regime might not survive. That means closing the Strait.” (John Authers)
• Iranian oil flows through Strait of Hormuz even as Gulf … Iran exported 13.7 million bbls of crude since attacks

Trump Has Never Been a Planner, and in War That’s Deadly

Senator Chris Murphy of Connecticut, a Democrat and member of the Foreign Relations Committee, took to social media Tuesday night to share takeaways from a classified briefing the White House shared with him and other legislators about the Iran war.

“I obviously can’t disclose classified info, but you deserve to know how incoherent and incomplete these war plans are,” he noted, emphasizing that regime change in Iran is no longer in the cards. (…)

Murphy also said President Donald Trump’s administration no longer intends to destroy Iran’s nuclear weapons program. It favors eliminating missiles, boats and drone factories instead.

A final item from Murphy: He asserted that the White House had “NO PLAN” about how to secure the Strait of Hormuz for safe passage of tankers and other ships. Some 20% of the world’s petroleum supply transits the strait. (…)

• Trump said in a Fox interview last November: “Costs are way down. Gasoline is going to be hitting $2 pretty soon, or around $2 gasoline is at $2.70 now”. National average is now $3.59 a gallon, up 65% since the war began.
• Iran tells world to get ready for oil at $200 a barrel as it fires on merchant ships
• US to Release 172 Million Barrels of Oil for IEA Relief Plan
• Iran Says Truce Depends on US, Israel Pledging Not to Strike Iran has told regional intermediaries that for a ceasefire, the US must guarantee that neither it nor Israel will strike the country in the future
• Trump tells Axios there’s “practically nothing left” to target in Iran “Little this and that… Any time I want it to end, it will end”

More from John Authers:

In a tour de force, the Egan-Jones ratings group (which has produced much pro-Trump commentary in recent weeks) used Sun Tzu, Machiavelli and Muhammad Ali to argue that the US has a problem. They fear that low-cost, decentralized drones, missiles, and intelligence networks make it far cheaper for a country to avoid defeat, even against a force as powerful as the US Navy:

Using Sun Tzu’s “The Art of War” as a guide, a clever way to defeat a stronger opponent is to make waging war far more costly for your opponent than it is for yourself. It appears that this is exactly the current situation.

(…) For what it’s worth, the Polymarket prediction market now offers a 52% probability that war will still be going on by April 30, which is 50 days from now.

A further problem is that reopening the Strait requires an Iranian regime that wants to do so, and has the strength to clamp down on rogue actors within. There is no sign of such a regime, even after the spectacular decapitation strikes that launched the offensive. Egan-Jones shows that none of Machiavelli’s five rules for successful regime change has yet been completed (while the US badly wants not even to try to implement some of them):

1. Eliminate the Former Ruling Family
2. Maintain Existing Laws and Taxes (When Possible)
3. Establish Colonies Instead of Large Occupation Armies
4. Live There Personally or Maintain Close Control
5. Crush Rebellions Quickly and Decisively

Goldman cuts U.S. economic outlook over the Iran war — and the fear goes beyond oil

Meanwhile, the cockroaches are growing

• Middle East Conflict Is Starting To Strain Credit Channels Across Sectors – S&P
• Morgan Stanley and Cliffwater limit private credit withdrawals Cliffwater $33 Billion Private Credit Fund Redemptions Reach 14%
• Deutsche Bank Flags a $30 Billion Exposure to Private Credit
• JPMorgan Chase reins in lending to private credit firms after marking down software loans
• As of March 2026, the private credit market has reached approximately $2 trillion in assets under management. While institutional demand remains the bedrock, retail wealth channels (via semi-liquid “evergreen” funds and BDCs) now account for nearly a third of the US direct lending market. While defaults remain low, they are rising and getting media attention. As a result, withdrawals are also increasing among retail investors, raising the risk of a credit crunch. (Ed Yardeni)

Iran war sparks helium supply concerns for South Korea chip sector Strait of Hormuz shutdown constrains flow of key materials and LNG to Asia

CONSUMER WATCH-EARNINGS WATCH

McDonald’s Preps New Discounts to Feed Budget-Minded Diners for $3 or Less

McDonald’s wants to out-value its own value menu.

Starting in April, the world’s biggest burger chain plans to launch new deals and discounts to keep the chain ahead of competitors in the battle for fast-food dollars.

McDonald’s new value effort includes a menu of items costing $3 and less, meant to provide more flexibility and choice, according to people familiar with the discussions. The chain is also readying new $4 breakfast meal deals. (…)

Rival chains are sharpening their own efforts. Panera Bread, which traditionally hasn’t offered a value menu, announced a $4.99 mix-and-match promotion last month. Domino’s Pizza said in February that deals like a $9.99 pizza of any style with any topping were helping capture customers from competitors.

Restaurant executives have said they will need to keep promoting deals for the foreseeable future, potentially squeezing profits.

At Applebee’s, deals now account for about one-third of what diners buy. “Our perspective is that this is the new normal,” said John Peyton, CEO of Dine Brands Global, the parent of Applebee’s and IHOP. (…)

CPI-Food-Away-From-Home is running 4-5% ahead of CPI-Food-At-Home and wages but rising oil prices are now hitting consumers hard.

• By some estimates, at a sustained crude oil price of $100 per barrel, the “Oil Tax” would wipe out the increase in tax refunds attributable to last year’s One Big Beautiful Bill Act (OBBBA). (Ed Yardeni)

AI CORNER

Amazon’s Win Against Perplexity Kicks AI Shopping Wars Into High Gear A judge ruled Amazon can keep outside AI bots off its site for now, but retailers are preparing for a new normal in shopping

Amazon.com may soon be able to lock its website down from outside AI agents, thanks to a recent court ruling. But the battle over how AI bots can shop on our behalf is just heating up.

A federal judge granted Amazon a preliminary injunction earlier this week barring Perplexity from using an AI agent from its Comet browser to access password-protected parts of Amazon’s website to shop on behalf of a human customer while the case winds its way through court. Perplexity has seven days to appeal the decision, during which time the order is stayed.

Consumers are farming out everyday tasks to automated agents, and are expected to use those tools for shopping more as well. AI companies see opportunity in building tools that help users find and buy products online, but retailers risk losing eyeballs that previously came to their own websites and stores, along with the related customer data and loyalty.

Amazon, Walmart and other major e-commerce sites are trying to adjust to that fast-changing retail landscape while maintaining their valuable, direct relationships with customers, including by introducing their own AI-powered shopping assistants.

Unlike humans who visit shopping sites, AI bots bypass ads and sponsored search results, a high-margin revenue driver for big retailers. Advertisers are expected to spend $71 billion on so-called “retail media” in the U.S. this year, according to eMarketer.

Amazon has built a massive advertising business over the past decade and brought in $68 billion from ads last year. It has made efforts to keep the entire shopping process within its walls to maximize the amount of time shoppers spend on the site, which in turn can boost ad revenue. (…)

A representative for Perplexity said the company would continue to fight for the right of internet users to choose whatever AI they want.

Other retailers have shown more willingness to work with AI companies, with boundaries.

Last year Walmart said it had partnered with OpenAI to let shoppers buy its products directly within ChatGPT, the company’s AI chatbot. More recently, Walmart clarified that it would use its own AI chatbot, dubbed Sparky, inside ChatGPT or other AI platforms for shopping. It is also phasing out an early version that allowed shoppers to buy items directly within ChatGPT, never visiting Walmart, Daniel Danker, executive vice president of AI at Walmart, said at an investor conference last week.

Earlier this year, Walmart said it would also work with Google to create a shopping experience within Gemini, Google’s AI platform. It also started testing ads within Sparky. (…)

Target is also experimenting with selling ads alongside its products within AI platforms. Target said last month it would test ads from its retail media business within ChatGPT.

A key draw of retail advertising is its ability to provide advertisers with concrete evidence of ad effectiveness. Shopping bots can be a major obstacle for retail ad sellers trying to accurately measure ad performance, since they don’t always identify themselves as bots.

Other retailers besides Amazon may be more willing to work with AI companies because they are eager to get even a sliver of the ad revenue that brands now spend on that site to reach shopper eyeballs, said Melissa Burdick, co-founder of Pacvue, a marketing firm that specializes in e-commerce. “If I’m everybody else, I actually want to get on to the LLMs, because then they have a chance of winning against Amazon,” she said, referring to large language models.

Meet the Companies Vibe Coding Their Own CRMs Most large enterprises would be wary to walk away from an established CRM vendor like Salesforce. But for smaller companies with specific needs, it’s a different story.

Predictions that AI tools could help displace established business software are quietly coming true in some segments of the market.

A number of small and midsize companies say they are vibe coding their own customer relationship management software in an effort to get more customized systems at a better price. So-called CRMs are a critical business system for tracking, analyzing and taking action on sales, marketing and customer data, and it’s an area Salesforce has dominated for more than a decade.

“We tried Salesforce and it was OK,” said Bill Schonbrun, chief operating officer of water treatment company CarboNet. “We did all kinds of customizations, but never got to the place where it did exactly what we wanted it to do.” Schonbrun ultimately opted to build his own custom CRM for the 65-person company with the help of AI. (…)

A Salesforce spokesperson said “vibe coding CRM without enterprise-grade protections for business data is a high-stakes gamble that [small and medium businesses] can’t risk,” citing a 2025 MIT research report that said internal builds were failing twice as often as strategic vendor partnerships.

Still, some small and middle market companies are forging ahead, finding with AI an opportunity to build systems that more closely fit their unique needs.

In January, Dave Clark, the former CEO of Amazon’s consumer operations and current CEO of supply chain startup Auger, went viral with a post about how he vibe coded a new CRM over the course of a weekend.

“We tried configuring an off-the-shelf tool for our cycle. Too many fields we don’t need, missing the ones we do…So I just built what we needed. Took a night and a morning,” he wrote.

Critics were quick to point out these apps can often be easier to build than they are to scale, secure and maintain.

That’s why many companies who want to build their own enterprise-grade CRMs end up working with a vibe coding vendor, some of whom offer customizable CRM templates companies can build on, said Adnan Zijadic, a senior principal analyst at Gartner.

That was the case for Vancouver, British Columbia-based CarboNet, which worked with OverAI.

OverAI, a startup with five full time employees and $6.35 million in venture funding, offers a conversational “AI Architect,” that helps companies build their CRM, or any other given system in natural language, while also pulling in prebuilt components, like permissioning systems and security alerts, said co-founder and Chief Executive Mollie Breen. (…)

The question of whether larger enterprises will seek to replicate some of these efforts remains to be seen, but it is top of mind for anxious investors. (…)

BNP Paribas’s Slowinski said some of the investor concern is less about customers walking away from established vendors in favor of vibe-coded alternatives and more that an explosion of new, AI-powered vendors could give customers negotiating leverage and put pricing pressure on the established players.

Still, those who have built their own CRMs say large enterprises shouldn’t necessarily write off the possibility.

“I think the Fortune 100 will begin to evolve over time,” said CarboNet’s ​​Schonbrun. “I think it’s a myth that big companies can’t or shouldn’t adopt this.”

FYI:

Markets now assign roughly a 47% chance of Democrats regaining Senate control, up from about 35% in early February and 41% before the Iran strikes 10 days ago

Source: Jim Reid, Deutsche Bank

IEA Proposes Massive Release of Emergency Oil Stockpiles

China Auto Sales Drop 15% as Subsidy End Deepens Holiday Slump

China’s vehicle deliveries fell 15% in February, as the phasing out of government subsidies worsened the usual Lunar New Year holiday slump.

Vehicle wholesales dropped to about 1.8 million units last month, data from the China Association of Automobile Manufacturers released Wednesday showed. Deliveries of electric cars and plug-in hybrids fell 14% to about 765,000 units, a further sign that demand for new-energy cars is cooling.

While domestic demand remains soft, exports surged 52% in February, the data showed. BYD Co. is making inroads into markets like South America and the UK, while Geely Automobile Holdings Ltd. entered 13 new markets last year, including Brazil and South Africa.

Foreign automakers also use factories in China as an export hub. Honda Motor Co. plans to start exporting its China-made models to its home market, the first time a Japanese automaker has done so. Volkswagen AG.’s Anhui operations won a concession from the European Union to export its Cupra Tavascan without paying a 21% tariff after agreeing to a minimum import price and quota.

Small Business Outlooks Remain Healthy Despite Dip in Optimism

Small business optimism fell for the second consecutive month in February as firms reevaluated their capex plans. Hiring plans also moved lower, a deterioration seemingly driven by weak worker demand as opposed to scarce worker supply. The share of firms referencing labor quality as their top problem slipped to 15% in February, marking the lowest share since April 2020. (…)

A readjustment in capital expenditures was the primary drag on small business optimism. After rising four points in January, the net share of firms making capital outlays fell back six points in February.

 

Small business hiring plans deteriorated in February, providing additional evidence that hiring is likely to remain muted over the near term. A net 12% of small firms intended to hire over the next three months, down from 16% in January and the lowest reading since May 2024. Job openings ticked up slightly to 33% but also remained historically weak.

In contrast to the decline in the headline optimism index, small firms’ sales broadly improved in February. The net share of firms reporting an increase in sales over the past three months moved into positive territory for the first time since May 2022.

Small business earnings also shot up in February. The net percent of firms reporting an uptick in post-tax income jumped seven points to -14%. Although still negative on net, this indicator is sitting at its highest point since December 2021.

 

Small business inflation appears stuck in a holding pattern. A net 24% of small firms raised prices and 28% planned to raise prices, remaining elevated over historic norms. While each declined slightly compared to January, these inflation indicators have essentially moved sideways over the past year.

 

There is no easy exit to Trump’s war The US and Israeli attacks on Iran will leave the Middle East in greater turmoil

The FT Editorial Board:

(…) Since launching the biggest conflict in the Middle East in decades after being spurred on by Israeli Prime Minister Benjamin Netanyahu, Trump has been boastful, belligerent and confusing in equal measure. The critical question of how the conflict ends is left unanswered. He has failed to articulate a clear set of goals or a day-after plan.

He has spoken about destroying the Islamic republic’s ballistic arsenal and nuclear programme, a Venezuela-style leadership change, and an “unconditional surrender”.

On Monday, he described the war, which involves the biggest US military deployment in the Middle East since the 2003 US-led invasion of Iraq, as a “little excursion”. At the weekend, he dismissed concerns about rising fuel prices as “a little glitch”.

His administration appears to have underestimated the repercussions of the conflict it unleashed and failed to understand its enemy. US and Israeli officials say Iran’s ability to launch missiles has been significantly debilitated. (…)

Yet if Trump expected the regime to capitulate under fire, he is being proven wrong on a daily basis. Cornered and battling for its life, the regime has been lashing out in all directions, fighting an asymmetrical war of attrition that it has long prepared for. (…)

Gulf leaders had pressed Trump not to strike Iran and warned of the risks of a regional conflict if he did. Now their nations are bearing the brunt. Yet Trump told Fox News on Monday he was surprised that Iran “attacked countries that were not attacking them”.

There are hints that he is indeed seeking an off-ramp. Yet the war he started has no good ending. There are no signs the regime is about to capitulate — it appointed Khamenei’s son, Mojtaba, as successor to his father in an act of defiance. Nor are there indications that it is facing imminent collapse. (…)

Any chances of a transition to a more moderate, less hostile government appear remote. If the regime were to disintegrate, the more likely outcome is a fragmented, fractured nation.

Iranians will suffer and its neighbours will have another failed state in their backyard. Continuing the war risks triggering a bigger energy crisis that would have consequences for the global economy and, most important for Trump, endanger Republicans ahead of the midterm elections.

Ending it will leave the regime wounded and weakened, yet able to claim its survival as a victory. Whichever path Trump now takes, it will be others who pay the price of his Iran folly.

• Iranians rethink the price of regime change Destructive US and Israeli war and Islamic republic’s resilience have alarmed even those who supported foreign intervention

(…) “We weren’t supposed to be bombed,” Mandana said, her voice trembling after a massive explosion near her apartment by Vanak Square in central Tehran. “Our city, our country, this wasn’t supposed to happen. How is it that Venezuela . . . saw clean, bloodless regime change, but not here?”

The scale of destruction and the apparent resilience of the Islamic regime, which appointed Khamenei’s son Mojtaba as the new supreme leader in an act of defiance, has prompted many Iranians to rethink hopes that foreign intervention might bring about its end.

Approaching two weeks into the war, no signs exist of the sort of anti-regime unrest that broke out across the country in January before being crushed in a brutal crackdown that killed thousands.

Instead many, even those who loathe the Islamic republic, appear to have recoiled at the destruction and comments including Donald Trump’s threat to target electricity production facilities if the regime escalated. The US president also said Iran’s map will “probably not” be the same after the war, sparking fears the conflict could break apart the country.

One sociologist in Tehran, who is critical of the regime and the war, said there was anecdotal evidence of a growing “sense of nationalism emerging from the war” as happened during Israel’s 12-day conflict against Iran last year, when people rallied around the flag.

“The fear of Iran’s destruction is increasingly uniting people as they fear the consequences of such a large-scale conflict,” the sociologist said, asking not to be named.

Non-military sites have become collateral damage, as air strikes target police stations, military facilities and officials living in residential neighbourhoods. More than 1,000 civilians have been killed and over 8,000 homes damaged or destroyed, according to official figures.

The scenes of devastation — to schools, a desalination plant, passenger aircraft and historic landmarks such as Tehran’s Grand Bazaar and Golestan Palace — have shocked many Iranians.

“If they wanted to assassinate the supreme leader, why are they waging full-scale war?” asked one woman. Before the war, she — like many anti-regime Iranians inside and outside the country — had welcomed military intervention. (…)

FYI:

Iran’s Islamic Revolutionary Guard Corps, the paramilitary force that answers directly to the supreme leader, seems to have pushed Mojtaba’s selection through. Starting on March 3, Guard commanders pressured Assembly members through what Iran International describes as “repeated contacts and psychological pressure.”

The online vote took place under what participants called an “unnatural” atmosphere—opponents given limited time to speak, debate cut off. U.S. and Israeli bombs struck the Assembly’s office in Qom after members voted but before counting finished. U.S. President Donald Trump had called Mojtaba “unacceptable,” insisting he, Trump, “must be involved in the appointment.” Israel’s military warned it would target any successor.

The elder Khamenei apparently didn’t want this either. According to sources within the Assembly cited by the London-based Persian-language news outlet Iran International, he “was not pleased with the idea of his son’s leadership and never allowed this issue to be raised during his lifetime.” (Note: Iran International is Saudi-funded.)

The Washington Post reports Khamenei said as much in his will. Iran’s founding ideology rejects hereditary succession—the 1979 revolution toppled a dynasty. And yet the Guards installed the dead leader’s son, a mid-ranking cleric most Iranians have never heard speak, who lost his father, mother, wife, and a child in the same strike. One analyst told Time: “He is filled with an undying desire for revenge, and the Guards know this.” (The Signal)

A Compromised Fed Would Risk a Fiscal Crisis

By Bill Dudley, former president of the Federal Reserve Bank of New York:

(…) the CBO projects debt service will reach 4.6% of GDP in 2036, up from 3.3% in 2026. Large budget deficits are increasing the amount of federal debt and the interest expense needed to service the shortfall. In addition, the average interest rate on the debt continues to rise as the low-cost debt issued between 2009 and 2022 matures and is refinanced at higher interest rates.

The debt service problem is one reason why the Trump administration is so intent on seizing control of the Federal Reserve and cutting short-term interest rates. Lower rates help the fiscal outlook in three ways: lower debt service costs, faster economic growth that generates more tax revenue, and faster inflation that reduces the real debt burden.

Over the next decade, the CBO expects there will be a 2 percentage-point gap between the annual budget deficit (6%) and nominal GDP growth (4%). As a consequence, the federal debt-to-GDP ratio will rise by about 2% each year. But if growth and inflation were each a percentage higher, then nominal GDP growth would be 6%.

(…) if the inflation rate rose and the Fed’s independence were compromised, inflation expectations would increase, pushing up yields on longer-dated Treasury securities as well as the government’s debt service costs.

As the economist Herb Stein famously observed, “If something cannot go on forever, it will stop.” Markets are ignoring the nation’s increasingly unsustainable fiscal path and the absence of the political will to tackle it.

If the Fed’s independence is compromised, that could be the trigger that brings the bond market vigilantes back and, with them, the market turbulence that forces the administration and Congress to change course.