Applications for U.S. unemployment benefits rose moderately last week, suggesting the labor market remains stable despite ongoing economic uncertainties tied to the U.S.-Israeli conflict with Iran. Data released Thursday showed initial claims increased by 16,000 to a seasonally adjusted 219,000 for the week ending April 4, slightly above economists’ expectations. The Labor Department report indicated no significant uptick in layoffs, supporting the view that employers have largely maintained hiring amid geopolitical tensions.

The conflict, now in its second month, has contributed to rising inflation, driven in part by surging energy prices after disruptions related to the war and associated sanctions. Monthly inflation in February marked its largest increase in a year, with further acceleration expected for March. Analysts anticipate the Consumer Price Index (CPI) for March could rise by about 1.0% month on month, translating to a 3.3% year-over-year increase. The government is scheduled to release the March CPI figures on Friday.

Complicating the economic outlook, a tentative two-week ceasefire announced by President Donald Trump on Tuesday depends on Iran reopening the Strait of Hormuz, a vital global oil shipping route. However, economists caution the truce remains fragile and that the war continues to add layers of uncertainty for businesses already managing supply chain pressures and fluctuating tariffs from the prior year.

The Commerce Department's Personal Consumption Expenditures (PCE) Price Index, closely monitored by the Federal Reserve, rose 0.4% in February—the largest monthly increase since early 2025—driven by higher costs in recreation, clothing, energy, and transportation services. Core PCE inflation, which excludes volatile food and energy prices, grew 0.4% for a second consecutive month and sits at a 3.0% annual increase, slightly down from January’s 3.1%. The Federal Reserve targets a 2% inflation rate, with many policymakers signaling that further interest rate hikes may be necessary to rein in price pressures.

The central bank has maintained its benchmark overnight interest rate between 3.50% and 3.75% since mid-March. Market expectations for a rate cut this year have diminished amid persistent inflation worries. Some Fed officials have expressed impatience with the pace of progress toward the inflation goal, underscoring the possibility of future tightening.

Despite the steady jobs data, the labor market shows signs of stagnation. Nonfarm payrolls added 178,000 positions in March, but the median duration of unemployment reached 11.4 weeks—the longest in nearly four and a half years. The number of people continuing to receive unemployment benefits declined by 38,000 to approximately 1.79 million for the week ending March 28, although this drop may partly reflect expiration of aid eligibility. Young adults, often with limited work histories, remain disproportionately affected by sluggish hiring.

Consumer spending, which accounts for over two-thirds of economic activity, rose 0.5% in February, rebounding from a modest 0.3% increase in January. However, inflation-adjusted spending growth was minimal at 0.1%. Household disposable income declined for the first time in nine months, and the personal saving rate fell to 4.0% in February from 4.5% in January, raising concerns about future consumer resilience amid higher prices. Economic growth slowed sharply in the fourth quarter to a 0.5% annualized rate after a robust 4.4% expansion in the third quarter. Early estimates project that first-quarter growth may moderate further to around 1.3%.

With inflation pressures mounting and growth slowing amid geopolitical risks and elevated energy costs, economists and policymakers face a complex environment in assessing the trajectory of the U.S. economy in the months ahead.