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10/27/2026

It's Fed Day

Today the Federal Reserve meets for the first time since their meeting in September and hiked the Fed’s benchmark interest rate by 0.25%. A lot has happened since this last meeting, and a lot is going to happen immediately after the meeting. Let’s cover the past first. We had a surprisingly weak September jobs report released the first week in October. We have also had numerous attacks on tankers in the Middle East, keeping tensions and oil prices high during the month of October. Inflation readings continue to come in higher than the Fed’s target, but inflation does not seem to be accelerating. Plus, in early October the minutes of the last Fed meeting were released indicating that at least one more rate hike would be appropriate some time before the end of the year.

What is coming? This is going to be a very busy time for economic data and events. After the Fed meeting this week we will see the first estimate of economic growth for the third quarter (GDP) and the release of the Fed’s favorite inflation reading – the PCE Price Index. Along with inflation, the pace of economic growth will be a big factor in determining the next Fed move. Then next Tuesday is Election Day. As we mentioned in the past, the Fed has been reticent to take actions affecting the elections unless urgent action was necessary. Though midterm elections may not have the same type of focus. And just to make things even more interesting, we end next week with the October jobs report.

Having a Fed meeting, the jobs report and the GDP all within 10 days gives us the trifecta of economic happenings. Right now, the markets are not necessarily predicting a Fed rate increase during this week’s meeting, but anything could happen. However, there is no doubt that the data releases coming after the meeting will go a long way towards determining whether the Fed will raise rates again this year. If it does not happen this week, there is only one more Fed meeting this year and that is in early December. We will see another jobs report, additional inflation data and a revision of the GDP numbers before that meeting. Some sort of resolution of the conflict in the Middle East would also help with some good news for the markets. Ending the year with some good news and no further rate increase from the Fed would be very welcome.

10/20/2026

Is The Economy Strong?

Typically, we can answer this question beyond a shadow of a doubt. This year seems to be an exception. Overall economic growth is measured by the Gross Domestic Product (GDP) and the economy averaged a 2.35% growth rate for the first half of the year. This amounts to a solid growth rate. Not too hot and certainly not too cold. But if you look at the individual parts of the economy, another picture emerges. For example, job growth has averaged 68,000 per month thus far this year. And in ordinary times, this rate of job growth would be considered very sluggish. But as we have pointed out previously, our present stagnant population growth makes these times anything but ordinary.

Going to another important sector of the economy, real estate is painting a picture of languid growth. Earlier in the year, the real estate market was growing, albeit slowly, as mortgage rates headed toward 6.0%. However, in the past few months, interest rates have increased markedly, and the real estate market has turned quite stagnant as a result. It should also be pointed out that higher interest rates are likely to affect other sectors of the economy as well, from automobile purchases to general consumer spending. Along with interest rates, higher energy prices can affect leisure and business travel as inflation definitely affects this sector of the economy.

One area which seems to be doing quite well is consumer spending. Consumer spending is a significant part of the overall economy. Some of the higher spending is as a result of inflation – consumers spending more to purchase the same products such as gasoline. Tax refunds resulting from last year’s tax bill have also provided a boost in consumer spending. Generally, as long as consumers are spending, the economy is growing. However, if higher interest rates and higher inflation rates persist, eventually consumer spending will run out of steam. Thus far, the economy has not reached this crossroad. The overall picture? An economy that is growing, but there are some lights flashing yellow.

10/13/2026

Inflation in Focus

It is mid-month and we are two weeks away from the next meeting of the Federal Reserve’s Open Market Committee. The September jobs report has been released as we reported in our last commentary. This week will feature two inflation reports – the consumer and producer price indices (CPI & PPI). The markets believe that the Fed considers the Personal Consumption Expenditures Price Index (PCE) a better gauge of inflation. The August PCE Price Index was released the last week in September and showed inflation to be in line with forecasts but still higher than the Fed’s target. However, the next PCE release will be two days after the Fed meeting and thus the most recent inflation data will be contained in this week’s releases.

Based upon the rhetoric coming from speeches from several Fed Governors in the past few weeks, the trend seems to be toward another rate increase. These speeches are interesting to note because the new Chairman of the Fed has been adamant about the Fed providing less forward guidance. Sounds like a disconnect in that regard. There is another factor to consider before the next meeting. The week after Fed meeting there will be a national election. In the past, the Fed has been reticent to take actions which might affect the elections, though this theory is more applicable within a Presidential election year. Thus, we consider it a much smaller factor as compared to the inflation numbers.

The big factor behind all of this is the specter of the Middle East conflict, or war -- as many prefer that term. The conflict has been quiet from a military standpoint within the past several weeks, however the rhetoric has not. Rhetoric that has ranged from full scale war to coming up with a compromise. In other words, all over the place. There is no doubt that solving this situation would go a long way towards easing inflationary pressures, but from the Fed’s point of view, the inflation caused by the conflict is embedded within our economy and not likely to disappear overnight. By the end of this week, we will see what the latest inflation readings show. But these readings are not likely to answer all of our questions with regard to the Fed’s thinking two weeks from now

10/06/2026

Where Do We Go From Here?

Like most years, this year has been a very interesting one with many twists and turns from an economic standpoint. We started the year with a lot of optimism regarding interest rates and the real estate market. In late February 30-year fixed mortgage rates hovered around 6.0%, and America had commenced refinancing their higher fixed rate mortgages. About that time the conflict with Iran started. It was supposed to last a few weeks, and we would be back to normal. Instead, the conflict escalated and metamorphosized into a battle over oil routes. Despite the fact that the military side of the conflict has quieted down, the effect upon prices has persisted and even escalated over time.

This has led to the Federal Reserve raising short-term rates to combat elevated inflation. Not that inflation has escalated significantly considering the sharp rise in energy prices, however inflation is definitely not easing towards the Fed target of 2.0%. The question the markets are pondering after the Fed made their move: Is the Fed finished, or are there additional rate increases on the way? Judging by the unanimous decision to raise rates and the statement issued by the Fed, many are speculating that we could have at least one more rate increase before the end of the year.

The Fed’s assessment of the strength of the economy will help guide this determination and this past Friday the government released the jobs report which gives us an important economic benchmark. In September, the economy added 29,000 jobs and the unemployment rate rose by 0.1% to 4.2%. In addition, the previous two months of gains were revised downward by 60,000 jobs, resulting in a total loss of 31,000 jobs. On the inflation side, wage growth increased 0.1% month-over-month and 3.0% annually. Overall, this was seen as a weak report which came on the heels of a strong report the previous month. This gives the Fed less leeway to make additional moves this year. Their next meeting will come at the end of October.

09/29/2026

Addressing Rising Rates

Last week we addressed the issue of inflation and inflation’s influence on interest rates. The Federal Reserve’s policy is to keep inflation at a 2.0% level as elevated inflation has a detrimental effect upon the economy. Certainly, elevated inflation has a detrimental effect upon every American’s pocketbook. The Fed tries to ease inflation by tightening monetary policy which can mean that they are raising their benchmark interest rate (the Federal Funds Rate) and/or decreasing the supply of money in circulation. These actions are designed to slow the economy at the same time.

Of course, the decision to tighten monetary policy is problematic if the economy is not strong. This is where the Fed’s balancing act comes in because the Fed’s goal is also a healthy economy. In other words, we don’t want to give the patient too much medicine, which would cause additional or even worse problems. To add another factor into the equation, there is the possibility that the Fed could raise interest rates as they did a few weeks ago but long-term rates such as rates on mortgages could go down as a result. How is that possible? First, the Fed controls very short-term rates. The Federal Funds Rate is the rate that banks charge each other to borrow funds overnight to make sure their balance sheets are "balanced." That is very short-term.

Long-term rates are affected more by the prospects of inflation, as discussed previously. When the Fed raises their benchmark interest rate, the markets perceive that the Fed is acting to bring inflation under control, which is a good thing. Therefore, it would not be unusual for the markets to react positively to this Fed action. However, it is also not unusual for rates to rise in anticipation of the Fed’s action, which is exactly what is happening. Going back to the economy, on Friday we have a report being issued which will give us a good idea if the Fed feels like the economy is strong enough to withstand higher short-term rates. That report is the monthly employment report for September. Last month we had a strong jobs report. Two strong reports in a row could denote the start of a trend after a long period of lackluster job growth. We expect the markets to watch this report closely in this regard.

09/22/2026

The Inflation Picture

This is a topic that we have visited before in the past, however with the latest bond market volatility, it is an opportune time to address the subject again with the Fed acting to address the issue this past week. When you view headlines such as the 30-year bond yields hitting their highest levels in close to 20 years, certainly going deeper is warranted. We start with this question – why are interest rates rising again? There are two main answers to this question. First, there are fears that inflation will continue into the future. There is a term for this inflationary condition, and it is called embedded inflation. Embedded means it is becoming a permanent or long-term part of the equation.

Why is inflation tied to higher interest rates? The simplest example is that inflation causes money to lose value in the future. If I lend you $100 for one year and the inflation rate is 10%, when you pay me back in one year, that $100 will only pay for $90 worth of goods. Therefore, I must charge an interest rate of 10% in order to break even. And we will state the obvious here—banks are not in the business to break even, thus the interest rate should be higher than 10%. Obviously, these numbers are fictitious, but they make the point.

The second answer is the fact that government borrowing is soaring. Why is the level of government borrowing an issue? We have record Federal budget deficits. Actually, mind-blowing deficits. That is what happens when you lower tax revenue and continue to spend. That is very simple math. Here we are talking about supply and demand. If the government sells more bonds to fund the deficits, they will need to promise a higher interest rate to investors if demand is strong enough. This forces other interest rates higher as well because the government is flooding the markets with supply. These problems are not ours only as inflation and government borrowing is happening around the world. Though the U.S. has some unique issues such as the aging of our population which is putting additional pressure on the deficits and especially the social security system.

09/16/2026

The New Fed is Not So New

The Federal Reserve’s new Chairman, Kevin Warsh, has promised changes in their modus operandi under his realm. Specifically, he has made pulling back on economic forecasting a cornerstone of his tenure. In his highly anticipated speech at the Jackson Hole Economic Symposium last month, Warsh explicitly criticized the Fed’s heavy reliance on "forward guidance"—the practice of telegraphing future interest rate paths. We agree with his assessment that "accuracy in economic forecasting is still just an aspiration." After all, many times we have stated within this commentary that predictions of the future are futile.

On the other hand, how many Federal Reserve members have made speeches in the past several weeks, calling for a rate increase based upon their predictions that inflation is not going to get better without some intervention? While we don’t have an exact count, enough of them have come out on this side of the equation that the markets were predicting a 60% chance of a rate increase around the first of this month. Another prediction of the future. Our point here is not to insert our own prediction of a rate increase, but to point out that the prediction game is not going away under Warsh’s tenure. As a matter of fact, with so many currently playing in the prediction markets, we as a culture are currently getting more invested in predictions, not less.

Two factors could keep the Fed from raising rates this week. First, the feeling that the Middle East conflict is not only going to quiet down, but oil and other commodities are going to start flowing freely again through the Strait of Hormuz. Secondly, evidence that our inflation rate is slowing and the economy is slowing with inflation. Warsh’s Jackson Hole speech indicated that the economy was strong. The most recent quarter’s 1.5% growth rate does not seem that strong to us, and the latest jobs report was evidence that, while unemployment remains low, job growth is still below normal despite a rebound last month. Also, last week’s inflation reports were elevated as expected. Will the Fed raise rates? We will get our answer tomorrow.

09/08/2026

Labor Day Jobs

Over Labor Day weekend the markets were able to ponder the latest employment report. The job sector has been up and down for the past eighteen months and after a dismal report in July, there was hope for an upturn with regard to the August numbers. As it turns out, in August the economy added 162,000 jobs. In addition, the past two reports were revised upward by 55,000 jobs resulting in a net gain of 217,000 for the month. The headline unemployment rate remained at 4.1%. Overall, these numbers were seen as a definite rebound from the lackluster July report.

On the inflation side, wage growth increased by 0.3% from July and 3.1% year-over-year. These numbers are vitally important because it is imperative that the American consumer’s wage growth meets or exceeds the growth in prices that consumers are experiencing. We are not only talking about everyday gas and other commodity prices, but long-term costs such as housing. Strong wage growth helps make mortgage and rent payments more affordable in the long run. Of course, strong wage growth can also fuel inflation, which is something that the Federal Reserve is watching very closely.

Speaking of the Fed, they are meeting next week for the first time since their July get together. The minutes of their July meeting were released in mid-August and there was certainly some inclination towards raising their benchmark interest rates. The August jobs report will likely add to this sentiment. Despite the concern regarding increasing inflation, we had a fairly benign consumer price index report released last month. The CPI index for August is due to be released this Friday and will serve as another important reading for the Fed to chew on when they meet next week. Another bit of good inflation news would be a good bit of am******on to hold the hawks off at this meeting.

09/01/2026

Labor Day Weekend

This upcoming Labor Day weekend will have a special meaning with regard to the American labor force. Always held on the first Monday in September, this particular Labor Day is on the very last possible day – September 7th. Why is that important? Typically, the August jobs report is released after Labor Day. But this year, Labor Day weekend will feature both the August jobs report on Friday and Labor Day on Monday. Thus, Labor Day weekend will really have an extra focus on the labor market. Considering the weak employment report released for July, we will be hoping for a last minute surge as the summer comes to a close.

Of course, Labor Day weekend is also the unofficial end of summer, even though fall does not start for a few weeks. Kids are back in school and that means that summer vacations are over. Traditionally this weekend represents the start of the fall real estate season as well. The fall real estate season is usually not as strong as the spring market, however in our present economy the direction of interest rates could have as much influence on the real estate market as the calendar. We had an early real estate spring this year because rates eased, but late spring and summer were a bit quieter as mortgage rates reacted to higher energy prices caused by the conflict in the Middle East.

The economy has certainly slowed a bit as the year progressed. Last week the estimate of the second quarter’s economic growth was not changed from the original estimate. The 1.5% growth rate by itself is indicative of an economy muddling along, which is not surprising considering the tepid employment sector. In any other time, a slow economy would have brought interest rates down from today’s levels, but elevated energy prices have kept the markets on edge. Theoretically, a slower economy should reduce energy consumption which would counterbalance somewhat the influence of the Middle East conflict. But markets don’t always react in concert with theory. Regardless of this conundrum, we hope everyone had a great summer and happy Labor Day!

08/25/2026

The Fed Has Another Worry

In our last commentary we discussed the Federal Reserve’s reaction to what they termed "elevated inflation." The recently released minutes from their last meeting and several speeches delivered since that meeting have served to indicate that there are Fed Governors who are ready to increase interest rates in the near future. Instead, they woke up to a big surprise during the early part of August. Employment data for the month of July revealed that 23,000 jobs were shed, In addition, the previous two months of job gains were revised downward by 103,000 jobs.

Taken together, that is a loss of 126,000 jobs. Since the economy has been adding only about 30,000 jobs per month over the past year, that number is extremely significant. Taken together with recent data showing a 1.5% growth rate for the economy during the second quarter (subject to revisions) – the Fed has another worry on their hands. That worry is slowing economic growth. It will be that much harder for the Fed to raise interest rates if the economy is not growing strongly enough. They can’t lower rates in the face of elevated inflation, and they can’t raise rates because of slow economic growth. That is called being between a rock and a hard place.

The good news is that the Fed is not meeting in August. Their next meeting is in mid-September. By that time, we will have another jobs report to chew on, as well as one revision of the measure of economic growth for the second quarter. Plus, there will be a few inflation readings as well. Let’s hope that the economy reverses some of these job losses and inflation eases as the situation in the Middle East calms down. Leaving rates steady would not be as much of a concern if these two scenarios come to fruition. In the above forementioned "rock and hard" place situation, this is the best we can hope for. We won’t have to wait very long to see some evidence as the Fed’s favorite inflation statistic is due out this week and the jobs report for August will be released at the end of next week.

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