From Friday’s breakeven (5 year Treasury-TIPS):
Figure 1: 5 year Treasury-TIPS spread (blue), DKW expected inflation (tan), both in %. Red dashed line indicates CPI inflation rate consistent with 2% PCE inflation, Light green shading denotes US-Iran conflict. Source: Treasury, Fed DKW.
DKW calculate expected inflation accounting for inflation risk and liquidity risk associated with Treasurys and TIPS respectively.
The 2% PCE inflation target is consistent with 2.4% CPI inflation (over the 1985-2026 period).
A detail:
Figure 2: 5 year Treasury-TIPS spread (blue). Light green shading denotes US-Iran conflict. Source: Treasury.
Kalshi sets 2026 CPI inflation at 3.4% y/y right now, up from 3% on 3/27 2/27.
“…up from 3% on 3/27.”
Should be “2/27”?
February 27 is the last day for which DKW provides estimates of inflation expectations, so one day prior to this year’s war on Iran. We’ll get DKW estimates for the war period soon.
FWIW, CDS rates for 5-year Treasuries are up about 2 basis points since the war began.
James pointed out reporting suggesting the U.S. and Israel are targeting civilian water supplies in Iraq:
https://econbrowser.com/archives/2026/03/strait-of-hormuz-de-facto-closure#comment-322355
Iran has now reported that a water-desalinization plant in Tehran has been bombed, at just about the same time the felon-in-chief threatened “complete destruction” for parts of Iran:
https://www.yahoo.com/news/articles/trump-promises-complete-destruction-tehran-213919023.html
This comes soon after Secretary of Defense Hegseth declared there would be “no stupid rules of engagement” for U.S. troops:
https://www.washingtonexaminer.com/in_focus/4483145/stupid-rules-of-engagement-war-iran-hegseth/
Remember when Hegseth tried to jail Mark Kelly for reminding troops of their obligation to refuse to carry out illegal orders? This is what it was about; the felon and his alcoholic TV-boy Secretary want to be like Vlad and Bibi, using human suffering as a tool of war, an objective of war, contrary to the Law of Armed Conflict.
Here’s a sketch of the four basic principles of the Law of Armed Conflict:
https://loacblog.com/loac-basics/4-basic-principles/
The four are: 1) Distinction between civilians and soldiers; 2) Proportionality; 3) Military necessity; 4) Unnecessarily suffering.
And no, intentionally destroying civilian access to drinking water isn’t allowable under the Law of Armed Conflict, and yes, we are bound by the Law of Armed Conflict.
Some folks just love their bloody wars. You’ve got Baffling blaming Iran for the US obliterating an elementary school killing 165 young girls in a war they didn’t start. It was a school that hundreds of little girls had been going in and out of every day for over a decade. If the US military didn’t know it was a school, they are too dumb and too blood thirsty to care.
This isn’t WWII carpet bombing from 30,000 feet. That building was destroyed with precision guided bombs with an accuracy of a few meters. It was targeted and hit intentionally dead center — twice. Those precision bombs wouldn’t have hit that building if the US military didn’t intend to destroy it. They wanted to flatten it. It was no accident.
If the US military didn’t know that 165 young girls were in that building, why did they destroy it? Kids had been attending that school from more than 10 years. That’s craven, depraved, careless indifference to human life. And Baffling is okay with that. As Donald Trump says, “Hey, stuff happens.”
Joseph, why did Iran place a girls elementary school right next to a military installation (ie target)? you think that was an accident? wow, Joseph just came up with the greatest military defense system in the world. simply place your military hardware and HQ next to vulnerable civilian infrastructure. you will be an unbeatable nation, as nobody will dare try to attack those locations.
I guess the nuclear bunker under the White House was simply a waste of money. no adversary would dare try to bomb the White House, considering it is such a national heritage treasure. Joseph, you deserve a Nobel peace prize for your wonderful insight into war. peace at last.
and people think that academics live in the ivory tower.
Question: “You said you want to be involved in the selection of the next leader of Iran. Can you talk to me about that?”
Trump: “ We want to pick a president that’s not gonna be leading their country into a war.”
We should be so lucky.
Energy Secretary Wright: “One large tanker has already gone through the straits with no issues at all … energy will flow soon.
One tanker … in a week. Normal is 100 ships a day.
These ships have absolutely no defense against drones. They are as helpless as those fishing boats from Venezuela. The US Navy does not have the capacity to protect 100 ships a day. Any ship captain deciding to roll the dice has to be nuts.
Oh, yeah. I forgot to mention that Donald Trump is now claiming that the Iranians bombed the girls school.