Resetting the Clock. Markets spent the day hyper-focused on President Donald Trump’s 8 p.m. ET deadline for Iran to reopen the Strait of Hormuz, only to have him issue another last-minute extension this evening.

The President kicked off the morning doubling down on his threats against Iran, writing on social media Tuesday morning that the whole Iranian civilization “will die tonight” if Iran didn’t meet U.S. demands.

But hours before the deadline, the prime minister of Islamic Republic of Pakistan Shehbaz Sharif, called for another extension. “Diplomatic efforts for peaceful settlement of the ongoing war in the Middle East are progressing steadily, strongly and powerfully with the potential to lead to substantive results in near future. To allow diplomacy to run its course, I earnestly request President Trump to extend the deadline for two weeks,” he wrote on social media Tuesday afternoon.

About 90 minutes before the deadline, Trump posted that he would agree to another extension. “Based on conversations with Prime Minister Shehbaz Sharif and Field Marshal Asim Munir, of Pakistan, and wherein they requested that I hold off the destructive force being sent tonight to Iran, and subject to the Islamic Republic of Iran agreeing to the COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz, I agree to suspend the bombing and attack of Iran for a period of two weeks,” Trump said, adding that the cease fire will apply to both Iran and the U.S.

Trump added that the U.S. had received a 10-point proposal from Iran, that he believes is a “workable basis on which to negotiate.”

The tension throughout the day, however, didn’t help stocks. The three major indexes were down for much of the day, though there was a late-breaking rally this afternoon that kept Tuesday’s stock performance well off the lows.

The Dow Jones Industrial Average still closed down 85 points, or 0.2%. But the S&P 500 and the Nasdaq Composite managed to close in positive territory, both up roughly 0.1% on the day.

That was likely led by oil prices. Brent crude briefly spiked to $111 a barrel after the U.S. carried out strikes on Kharg Island. But the international prices fell back down closer to $107 a barrel as markets wound down for the day.

That said, the Brent crude oil forward curve—the shape of which offers insight into how the market is pricing supply and demand expectations over time—is offering some cautionary signs, writes Adam Turnquist, chief technical strategist for LPL Financial.

“The oil market is signaling a higher-for-longer pricing regime,” Turnquist wrote on Tuesday. “While the sharp degree of backwardation points to an immediate supply shock, the upward shift in the forward curve and continued demand for call options on longer-dated contracts suggest a diminishing likelihood that Brent crude prices will return to their pre–Iran war lows near $70 anytime soon.”

The Hot Stock: Paramount Skydance Corp. +10.7%
The Biggest Loser: Axon Enterprise -9.7%

Best Sector: Communication services +1.0%
Worst Sector: Consumer staples -1.8%

The Iran war is set to boost inflation at this point, no matter whether the fighting is resolved immediately or not. But Joseph Stiglitz, a leading economist who is currently a professor at Columbia University and chief economist of the Roosevelt Institute, warns that there’s a strong risk that if it persists, it could spur stagflation—a condition that emerges when there’s weak economic growth, high unemployment, and high inflation.

If, “miraculously,” the Strait of Hormuz reopens soon, the inflationary risk would be muted—but it wouldn’t entirely disappear because prices for crude oil and fertilizer are global prices, Stiglitz recently explained to my colleague Emily Russell.

“If there is no oil or less oil going through the strait, global prices are going to be higher and Americans are going to be paying higher prices,” he noted.

Not all price shocks carry the same risk, particularly when it comes to consumer psychology. As it turns out, gasoline and food prices are two of the areas where cost increases can really impact sentiment and inflation expectations.

“In terms of how people feel and how that is reflected in their willingness to spend and their sense of how well the economy is doing, they are sensitive to food and energy prices,” Stiglitz said.

What that means in the short-term is that the Federal Reserve is going to be a bit hamstrung. “Raising interest rates isn’t going to solve the problem of a shortage of food or oil,” Stiglitz said. In fact, most economists believe that the Fed should look through short-term spikes when inflation is caused by a supply shock.

But Stiglitz noted that “there are an awful lot of people who believe that the Fed would be derelict” if they didn’t raise rates in the face of persistent inflation—especially because price growth has been running above the 2% target for five years.

“I feel sorry for Fed Chair Jerome Powell because he is in this impossible situation. If he raises interest rates, that would exacerbate weaknesses in the real economy. If he doesn’t, he will be blamed for inflation, even if the Fed’s contribution to it has been relatively small,” Stiglitz said.

That said, incoming Fed chair Kevin Warsh doesn’t have it easy either, Stiglitz added. “Warsh is going to have a hard time. Most people are going to be skeptical of his independence [from the White House],” he said.

But Warsh isn’t helping himself either by contending that the Fed could lower rates as a result of an AI productivity boom, Stiglitz said. “There is a lot of debate about whether that productivity boom is real, but I don’t think anybody thinks the AI productivity boom is going to show up in the macroeconomic data in the next year or two—or at least show up in the data enough to justify any significant impact on rate determination. He undermines his credibility with remarks like that,” Stiglitz said.

Read the full Q&A here.

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The Federal Open Market Committee releases the minutes of its mid-March monetary-policy meeting. At that meeting, the FOMC kept the federal-funds rate unchanged at 3.5% to 3.75%.

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