American households seemingly remained undaunted by the war in Iran last month, spending more than expected even as measures of consumer sentiment plunged to historic lows. According to figures published by the Census Bureau this morning, so-called “control group” retail sales—with gasoline, cars, food services, and building materials excluded—rose 0.7% in March, beating forecasts set at 0.2% and climbing at a solid 4.8% pace in year-over-year terms. Total receipts at retail stores, online sellers and restaurants rose 1.7% on a month-over-month basis, following a 0.7% gain in the prior month. Ahead of the release, economists were projecting a 1.4% monthly jump in the headline after gasoline prices climbed at the fastest pace in modern history—forcing consumers to pay more at the pump—and thought this might lead to softness in other categories.

A slowdown may be on its way, but it’s difficult to find hard evidence at this juncture. Spending growth—as measured via Bloomberg’s proxy measure for real-time consumption, along with other indicators like Johnson Redbook sales—has fallen slightly from its peak, but remains well above historical averages as strong household balance sheets and still-favourable income effects, partly supported by tax refunds, contrive to keep the money flowing.

Yields are climbing and lending the dollar support as investors question the need for lower rates from the Federal Reserve. Traders are now putting sub-85% odds on a move by year end, down sharply from expectations earlier this year, when the central bank was seen delivering at least two—and perhaps three—cuts before December.

Financial markets are generally exhibiting signs of calm after the recent tumult, with measures of implied volatility trending lower across asset classes even as the Strait of Hormuz remains blocked and the outcome of US-Iran negotiations unclear*. Trading ranges in the major currency pairs have contracted sharply and positioning is migrating toward neutral as the safe-haven bid for the dollar and Swiss franc evaporates, with no new economic narrative yet filling the momentum vacuum.

The pound is trading almost unchanged after this morning’s jobs data failed to cut through the noise surrounding Keir Starmer’s decision to appoint Peter Mandelson—linked to Jeffrey Epstein—as UK ambassador to the US. The number of payrolled employees fell by 11,000 in March, and while the unemployment rate unexpectedly dipped to 4.9% in the three months to February, the decline owed more to a drop in participation than a rise in employment, with weakness also seen in average weekly wages excluding bonuses, which cooled to 3.6% year-on-year from 3.8% in the prior month. The Prime Minister is facing calls to resign over Mandelson’s appointment and ahead of local elections on May 7, but investors—and punters in prediction markets—see this as unlikely, with most expecting the current leadership to remain in place for now.

The dollar could move during this morning’s confirmation hearing. According to prepared remarks circulated yesterday, Kevin Warsh, Donald Trump’s nominee to replace current Chair Jerome Powell, will strike a careful balance before the Senate banking committee, affirming that the Fed’s independence is “essential” for controlling inflation, while maintaining that it is not threatened when elected officials voice opinions on interest rates, and urging the institution to “stay in its lane” rather than stray into areas where it has “neither authority nor expertise”. Traders will be listening intently, however, when senators press Warsh on the policy outcomes he intends to steer the committee toward, his outlook for the policy path, and how he envisions managing the central bank’s relationship with the Treasury—questions that might lead to answers with implications for long-term interest rates and currency markets.

Any price action should, however, be modest and short-lived. Senator Thom Tillis, the retiring Republican from North Carolina, has vowed to block Warsh’s nomination until the administration drops what he has called its “weak and frivolous” criminal investigation into Chair Powell—and President Trump has shown no signs of directing the Justice Department to reverse course, even after a judge last month quashed its subpoenas, finding prosecutors had demonstrated a “total lack of a good-faith basis to suspect a crime”. If Warsh is not confirmed by the end of Powell’s term on May 16, the most likely outcome is that Powell stays on as chair pro tempore, as he himself has indicated he will do, and as historical precedent supports. But some legal scholars believe the administration could attempt to install its own candidate—perhaps Stephen Miran—injecting fresh legal and institutional uncertainty into an already fragile status quo* in markets.

*To the extent that we can’t be certain any negotiations are actually underway.

**Latin phrase meaning “for the time being” or “temporarily”.

***As Reagan put it, “Status quo, you know, is Latin for ‘the mess we’re in'” .