April 17, 2026
Every day there is a new headline about the course of the war in Iran. Today’s news was unambiguously positive. Iran and Israel announced a 10-day cease fire. Iran agreed to re-open the Strait of Hormuz. The stock market surged. Crude oil and gas prices plunged. Bond yields declined. As always, there is a lot that we don’t know. Will the cease fire hold? When will the U.S. blockade of Iranian ports end? How quickly will the production and flow of oil from the Mideast rebound? How much will oil prices decline? What will happen to Iran’s stock of nuclear fuel? All legitimate questions. They will not be resolved any time soon. But they seem to be happening step by step. First, Trump indicated last week that the war would soon be over. Now, Iran makes a major concession. There will undoubtedly be stumbling blocks along the way, but the U.S., Iran, and Israel all seem committed to finding some sort of a diplomatic solution. That is clearly good news. The world feels a lot safer today than it did a day ago.
Trump said early last week that the war would end quickly, Few people believed him. We said at the time that his comments were a harbinger that the end of the war was in sight, not because the U.S. won or lost but because the mid-term elections are approaching and Trump wants the economy to be humming during the course of the summer.
Stock investors welcomed the news. The S&P 500 index has completely erased its earlier 10% decline and surged to a record high level.
After reaching a peak of $115 per barrel in early April crude oil prices have plummeted to $83. Crude prices have not yet returned to their pre-war price of about $65 and are unlikely to do so any time soon. Some of the oil producing and delivery infrastructure in many Gulf countries was damaged or destroyed during the war and will need to be rebuilt or replaced. But the threat of a prolonged closure of the Strait of Hormuz, which carries about 20% of the world’s oil, would have sent oil prices skyrocketing. That fear has been eliminated. The entire world is breathing a huge sigh of relief.
While today’s euphoria could give way to tomorrow’s panic, we continue to believe that the war is ending and that despite day to day hiccoughs the direction is clear. If that is true, consumer confidence should rebound from its current record low level. Business confidence has not declined as sharply but it too will be uplifted by recent developments.
If consumers’ animal spirits are revived they should be willing to spend somewhat more freely. Ditto for firms’ investment spending. They may even be willing to boost their pace of hiring. If that occurs GDP growth between now and yearend should be robust. For what it is worth, we expect GDP growth of 2.0% in the first quarter followed by growth of about 2.5% in each of the following three quarters which would produce 2.5% growth for the year as a whole. At the beginning of the year we anticipated 2026 GDP growth of 2.8%. We will see how things develop, but growth at our originally predicted steamy pace is not out of the question.
On the inflation front the good news is that we can take off the table the possibility of a further jump in oil prices. Even if oil prices decline slowly from here, it is likely that some of the earlier jump will spill over into the prices of the wide variety of goods that use oil as an input. As a result, we expect the core CPI measure which is currently at 2.6% to climb to 3.0% by yearend.
The combination of steamy GDP growth and an inflation rate of 3.0% is not a recipe for additional rate cuts by the Fed. But by June the Fed will have a new Chair, Kevin Warsh. He apparently agrees with Trump that the economy needs lower rates. Whether he can convince his colleagues that is the case remains to be seen. But because of this change in Fed leadership we cannot take off the table a midyear rate reduction. But whatever the Fed may choose to do in the summer, it is quite clear that it cannot go far and still maintain any credibility.
The bottom line is that the negative bias to growth and inflation triggered by the war has disappeared and we expect a more friendly growth/inflation combo in the months ahead.
Stephen Slifer
NumberNomics
Charleston, S.C.
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