Fed Watch – 4/10/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker, and thank you so much for joining us for this April 10th edition of Fed Watch. It has been a big data week, so let’s jump right into it. On Thursday, we got the revised fourth quarter GDP numbers, which were revised lower, down to 0.5% on an annualized basis. Now, that’s down from 0.7% as we previously had the data. A lot of this downgrade came from inventories. That was one of the major components that changed. And I actually talked about inventories earlier this week. If you caught our 60-second economic update, we were talking about business investment.

And one of the key drivers that we see going forward for an increase in business investment is the fact that we seem to have worked through this overhead of inventories already. So keeping in mind that this is fourth quarter GDP, this is now very far backward looking as we’re sitting here in the second quarter of 2026. A downgrade to inventories is not necessarily a bad thing. This growth, again, is already in the books. But looking forward, this is one of our primary drivers for why businesses will need to invest going forward as we start to see that demand turning upward. Let’s also remember the fourth quarter of 2025 numbers. This does include that government shutdown period. The consumer side of the equation, consumer spending, was revised down slightly yesterday, down from 2.0% to 1.9%. This is still a very healthy level. So as we look at the key fundamentals for GDP growth, we still have those foundational aspects in place. The consumer is still holding in there, again, at least through the fourth quarter and certainly in the leading indicators that we are tracking, with some stability with the wherewithal to keep spending. Unfortunately, more of that spending is being driven by borrowing by debt.

So that’s something we’re going to watch very closely going forward. But at least yet, we don’t have evidence to say that the bottom is falling out from under the consumer. But let’s really hone in on that consumer piece with the CPI numbers that came out just this morning. CPI up as expected, up big in March on that war with Iran, on the conflict, on the oil price increase, as well as some other inflationary aspects of that conflict. The headline CPI number came in at 3.3%. If you want to take this on a core basis, that is excluding food and energy, that was 2.6%. So however you look at this, these are elevated figures. We again had been expecting a pickup in CPI driven by that conflict. What’s really interesting to note, if you delve into the energy sector specifically, is that a lot of this inflation, it’s not coming through exactly evenly. So here’s where it’s critical to know your markets, know your own pricing, both of inputs and what you should be passing through in your business. Gasoline prices, the one that we all complain so much about as consumers, up 21.2%, which is a huge number. However, we actually saw things like diesel up even more, 30.8% and fuel oil up 30.7%. That’s one that will disproportionately affect certain areas of the country.

I’m sitting here in the Northeast where a lot of our homes are heated by that that home heating oil. So seeing some exacerbated impacts, that is certainly going to affect certain segments of the consumer. The other side of that non-core inflation, the food side, food inflation was still pretty benign in March. This is one that I’m watching closely going forward.

We haven’t yet seen all of those impacts of the conflict flow down the supply chain. It’s not just oil that goes through the straight-of-hormuz. We also see a lot of fertilizer and the inputs for fertilizer come through that passageway. So with us just now entering the core planting season here in the Northern Hemisphere, having a supply constraint in fertilizer products, that could cause some future inflation in food. We’ll be watching that again as we go, but at least yet not seeing anything too outrageous there. So the big question for the Fed. Will all of this inflation be picking up enough that they can’t cut interest rates or even eventually need to raise interest rates? Or on the other hand, is this going to cause such a crimp in consumer spending that it really could threaten growth and that the Fed feels they need to cut to offer that bit of relief?

Right now, I don’t think we can make a strong determination. Clearly, the weighting is more on holding rates at this point. The market is increasingly coming around to that as consensus. Because a lot of the data that came out this week, while it’s interesting to drill down into the numbers, we’ve known that these trends were on the horizon. We knew that the war in Iran would cause higher prices in March. We knew there would be more inflation to come for many other reasons more broadly than these geopolitical impacts. We also knew that the fourth quarter GDP numbers were not an accurate representation of growth due to those other factors like the government shutdown. So what does this week’s data change, either for the Fed or for business leaders? I’m going to say not that much. This is the time to stay the course, to stick with the forecast.

We will have more data flowing through the system. We know what we should be watching. The number one factor for me right now is those real incomes. Are wages and salaries rising at a faster clip than inflation? And how much of this inflation is short-lived? Clearly, the most immediate impacts will start in March. We’ll see it for a few more months. But given past conflicts, we don’t expect to see a consistently higher level of, say, oil prices. Usually, we see the immediate shock and then some pulling back. So that is our message today. Stay the course. Keep with the forecast. Talk to your ITR economist if you need more information, but otherwise, we hope you’ll join us again next week right here on Fed Watch.