Fed Watch – 5/8/2026

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

Hi, I’m Lauren Saidel-Baker, and thank you for joining us for this May 8th edition of Fed Watch.  

Well, are Fed officials worried about inflation or are they not? Depending on who you ask you can get very different messages. However, it seems at this point that the preponderance of evidence, so to speak, the bulk of members on that voting committee are starting to raise some inflationary caution signs. Now, part of this does stem from the recent conflict in the Middle East, with oil prices, with supply chain crunches resulting from that conflict. However, we’re starting to get a little bit more messaging about more pervasive inflation, really more structural inflation from some of these members on the committee. We especially note that in the last statement, a few regional bank governors especially, were pushing back on the language that came out in that post FOMC meeting statement that really hinted that there would be more cuts coming, and it was just a matter of when. So starting to see the momentum shift away from cuts on the committee. That’s going to be a very important trend to watch. As we’ve said before, even with new incoming chair Warsh being a little bit more dovish, or at least having historically signaled a little bit more dovishness, that does not mean he can necessarily push through any amount of policy.  

But I want to touch base to how this all relates to some of our ITR forecasts today. So we talked about GDP a little bit last week. As a result, we were actually showing the ITR forecast well within range, almost dead on median about seven quarters out from when we first put that forecast in place. So we do see the economy essentially performing as we had been expecting. One critical metric that we’re watching here, inflation adjusted wages and salaries, some of those results, I’m not comparing here to our forecast, but comparing to what is normal for a seasonal pattern in this indicator. Those are showing below their normal range for both February and March.  

So with March especially some of this is that inflation starting to heat up, starting to erode that purchasing power. We also though might be seeing a relatively poorer quality of data with the result from some of those previous government shutdowns. I believe both of those data points were actually released on the same day as a result of some of the backlog. Or we could be starting to see some of that weakness, especially in particularly discretionary consumer segments. So this is going to be an important one to watch. We talk a lot about real personal incomes, but there are several exact metrics. If you want to measure this with precision, please talk to your ITR economist, we have a number of different indicators that can relate to your business, your sector, or just a certain branch of the economy overall that you need to be watching. But more than anything else, don’t count the consumer out. Following a jobs numbers. We do still see strength in the overall labor market. Now, if you look at the ADP results that came out earlier this week, 109,000 jobs created in April, that is quite strong, showing particular strength in the small business side of things. And healthcare is actually still one of those forces leading the charge in terms of job creation.  

As we’ve talked about in the past, healthcare is not necessarily the core of the macro economy or where we’re going to see that overall macroeconomic trend come through. So please do keep that in mind, healthcare, education, both performing very well, which is good for those sectors, however, not so strong a signal for the rest of the economy. Consumer strength again this is a weakening trend, we are seeing slightly lower growth rates. So we want to continue to watch these indicators. But as I’ve said before at two thirds of GDP do not count the US consumer out. We’ll be tracking all of these indicators and more. Hope you stick right here with us to do so on future editions of Fed Watch.