Weekly Economic Update: May 19th, 2026

Inflation rises as Iran conflict drags on

In a surprise to no one, inflation spiked last month due to oil being parked in the $95 to $105 per barrel range as the Iran conflict drags on.¹

Iran finally provided a 14-point proposal to President Donald Trump, which was more of a wish list than a serious proposal and was dead on arrival.² It seems as if the Iranians intend to delay for as long as possible in the hopes of inflicting enough economic pain on the U.S. to make it go away. It seems to be a reasonable approach, given that the conflict has been ongoing for nearly three months rather than the promised four to six weeks. The intensive bombing stopped on April 8, and as long as it doesn’t resume and there’s no threat of U.S. troops being committed, Iran is perfectly fine pretending it has a say in the matter by making outrageous demands.

Who knows what the next twists and turns will be in this conflict, but the near-term fallout is visible every time we fill up our gas tanks. The rise in energy prices has “fueled” (see what we did there?) the recent spike in inflation. The consumer price index (CPI) for April jumped to 3.8% from 3.3% in March, while the producer price index (PPI) jumped from 4.3% to 6%.^3,4

The prices for materials for companies that make things we consume are climbing faster than end-user prices, which can only go on for so long. At some point, those costs must be passed on to consumers. With PPI at its highest level in three years, unless energy costs come down quickly, consumer prices will rise even higher. And we all know once prices go up, it takes much longer for them to come down, especially once sellers get used to the higher levels.

Again, the increased inflation rates are driven by higher energy costs, which impact all parts of the economy. Unless the Iran conflict resolves quickly and the energy markets normalize, we could be in for a very hot and expensive summer.

Markets remain seemingly unfazed by the whole thing, as we hit new record highs last week. Things cooled off a bit on Friday as tech stumbled and yields climbed due to inflationary fears.⁵ It’s always concerning when the 10-year treasury surpasses 4.5%, and it popped to 4.58% as we headed into the weekend.⁶

Warsh confirmed as Fed Chair

Kevin Warsh, President Trump’s pick to head the Federal Reserve, was confirmed on a mostly party-line vote last week by a margin of 55-45.⁷ (Pennsylvania’s John Fetterman was the only Democrat to join all Republicans in favor of Warsh.)

There was a time when senior administration and cabinet nominees would routinely garner bilateral support and sail through confirmation, with maybe one or two senators opposing for whatever pet reasons they had but in a polite and collegial manner. Not so much anymore.

Regardless, Jerome Powell’s tenure as Fed chair was coming to an end this month, and Trump wanted different leadership.⁸ We’ll have to see what that leadership will look like with inflation where it is and where it is headed.

Another little wrinkle is the upcoming departure of Fed member Stephen Miran, who championed large interest rate cuts in his very short tenure.⁹ It’s hard to believe that if the president gets a chance to name another Fed voting member, their outlook would be much different. Given where things are today, there is zero case for lowering rates; in fact, there is a strong case for raising rates.

Given all the shenanigans over the past six months around government funding and the Iran conflict, we’re not seeing an overly robust economy that needs to be cooled off, but rather an inflationary situation that needs to be addressed. We’re back to the same old decision: 1) raise rates to slow inflation and potentially harm the economy, or 2) keep rates where they are or (crazy as it sounds) lower them and risk even higher inflation. So much of this was easily avoidable, but thanks to our hyper-divisive government, we are in yet another pickle. And we’re not even halfway through the year!

Coming this week

• Now that jobs and inflation readings are out of the way, markets will have little data to digest, aside from the release of the Fed minutes from its April meeting. Once again, the market’s focus will be on any developments with Iran, plus the continued fallout from higher energy prices and inflation, as we head into the Memorial Day weekend.
• Monday will be quiet with a few Fed speakers. Anything they say will have zero impact until Warsh assumes leadership. Unless one or more of them boldly proclaim they are willing to move rates in response to elevated inflation, the markets likely won’t even notice.
• Tuesday will feature pending home sales, and MBA mortgage applications will follow on Wednesday.
• Wednesday will also include the release of the April Fed meeting minutes. It will be interesting to see where the chips fell and who may be aligned with or against Warsh. The Fed is gearing up to be pretty divisive (just like the rest of our government), so that dynamic bears watching.
• We’ll get weekly jobless claims, housing starts, building permits and the Philly Fed manufacturing survey on Thursday.
• By Friday, traders will be gearing up for the long weekend, as markets will be closed on Monday, May 25, in observance of Memorial Day. No one will probably notice the consumer sentiment and leading economic indicators reported that day. However, there may be some selling if things get worse with Iran, as Wall Street may want to avoid holding long positions through the weekend.
• Earnings are almost complete for the first quarter, with 91% of S&P 500 companies reporting results.¹⁰ As of May 15, 84% of companies have reported positive earnings per share (EPS) and 80% have reported positive revenue. Earnings growth for the first quarter is 27.7%, up from 11.9% in the fourth quarter of 2025. If that’s the actual growth rate for Q1, it will mark the highest earnings growth for the index since Q4 2021.
• For the current quarter, 38 S&P 500 companies have issued negative EPS guidance, while 42 have issued positive. Valuation is still historically high for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 21.4 versus 22.2 last quarter. Although this P/E ratio is a little higher than the 5-year (19.9) and 10-year (18.9) averages, P/E will likely jump again next quarter due to the market’s recovery since the March lows.

Sources:

¹ Yahoo! Finance. “Crude Oil Jul 26 (CL=F).” https://finance.yahoo.com/quote/CL=F/. Accessed May 17, 2026.

² Ashleigh Fields. The Hill. May 11, 2026. “Iran’s top negotiator: Accept our proposal or ‘American taxpayers will pay for it.’” https://thehill.com/policy/international/5873253-iran-negotiator-ghalibaf-proposal/. Accessed May 17, 2026.

³ U.S. Bureau of Labor Statistics. May 12, 2026. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed May 17, 2026.

⁴ U.S. Bureau of Labor Statistics. May 13, 2026. “Producer Price Index News Release summary.” https://www.bls.gov/news.release/ppi.nr0.htm. Accessed May 17, 2026.

⁵ Sean Conlon, Sarah Min and Lisa Kailai Han. CNBC. May 15, 2026. “Dow loses more than 500 points Friday as tech slumps and yields spike: Live updates.” https://www.cnbc.com/2026/05/14/stock-market-today-live-updates.html. Accessed May 17, 2026.

⁶ CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US.10. Accessed May 17, 2026.

⁷ Jeff Cox. CNBC. May 13, 2026. “Kevin Warsh wins Senate confirmation as the next Federal Reserve chair.” https://www.cnbc.com/2026/05/13/kevin-warsh-wins-senate-confirmation-as-the-next-federal-reserve-chair.html. Accessed May 17, 2026.

⁸ Bryan Mena. CNN. May 15, 2026. “Powell, the most battle-tested Fed chair, finishes his term.” https://www.cnn.com/2026/05/15/economy/fed-chair-jerome-powell-exit. Accessed May 17, 2026.

⁹ Federal Reserve. May 14, 2026. “Stephen I. Miran submits his resignation as a member of the Federal Reserve Board, effective when or shortly before his successor on the Board is sworn in.” https://www.federalreserve.gov/newsevents/pressreleases/other20260514b.htm. Accessed May 17, 2026.

¹⁰ John Butters. FactSet. May 15, 2026. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_051526.pdf. Accessed May 17, 2026.

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