Fed Watch – 8/14/2026

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

This week we get a Goldilocks inflation print, and against my better judgment, I wade into the comment section. This is ITR Economics Fed Watch. Thank you for joining us, I’m Connor Lokar.

And we got CPI this week, which always makes for a very exciting week here at Fed Watch when we get new inflation data. And I would say that we learned nothing really. It was not, almost nothing anyway, I guess I’ll put it that way. It was, as I described, a Goldilocks inflation print, but not in a good way. And I suppose your perspective is going to vary there. But for those of us rooting for evocative YouTube content, it was an inflation print that wasn’t hot enough to guarantee a hike in September, and it wasn’t cool enough to guarantee that we wouldn’t get one. And it really wasn’t much of a needle mover. It was really that, not too hot, not too cold, slotting right there in the middle that I’m not sure that we learned a whole heck of a lot. We’ll talk about probabilities and implied probabilities and markets here in a little bit. But for those that haven’t seen it, the headline number came in at plus 3.4% for July compared to July 2025. It was essentially flat from June, even ticking down ever so slightly. So I think the Fed was probably pleased with it. And early headlines seemed to say it was good in the sense that we didn’t see a ratcheting up of inflationary pressure.

As we peel a couple layers, when we look at core CPI, that looks even better at plus 2.5%. So starting with a two there, obviously preferable to starting with a three comparing against July 2025, and it rose less than average for a typical June to July move on that core number, which we know that they care about. Which core, by the way, for those that don’t know, I’m sure most of you do, but for those that don’t, that is CPI excluding food and energy, which has always driven me kind of crazy, right? It’s like, yeah, sure, let’s just exclude the two primary cost drivers that also happen to be one of the most inelastic demand curves in your typical household budget, which is putting food in your belly and gas in your car, to yield a more favorable typically number for our one of our preferred inflation metrics. So that’s neither here nor there, but I feel like I need to get that out there. It’s like, yeah, well, if you discount the two things that people buy every day, like food and energy, we’re fine. It’s like, okay, that’s, and that’s, and that is not specific to this Fed or this year or this week or anything. We’ve been doing that for a long time, and it’s always driven me crazy.

Also, on the data side, this week we did get existing home sales, which I think is pertinent to the conversation because given our commentary tracking over the last couple of weeks, Kevin Warsh, his intimation that we, they are welcoming tightening, not from hiking the Fed funds rate, but actually from the long bond and rising long-term yields, which they have gotten over the last few weeks, which of course drives mortgage rates higher as well. I guess we can say mission accomplished because July existing home sales came in weak. Declining slightly from June’s level, when maybe in a robust market, you typically see an increase month to month from June’s level and really just stuck around that four million unit mark there on an annualized basis, and up just 0.7% from the July 2025 reading. So with those higher long bond yields, we are seeing the housing market is still generally stuck. And those of you that have been waiting for that 4% mortgage rate to either sell a home, buy a home, make a first time home purchase over the last few years, you’ve realized as you look down that you have turned into dust while you wait for that 4% mortgage rate that is not coming.

So tying a bow on it, this week’s middling inflation print, combined with last week’s tepid labor market data to close the week out, I think this is setting the table for a no change at the September meeting. I know we said we didn’t learn enough to pick sides, hike or no hike. I’m leaning no hike at this point. I think that this print buys us some time for a holding pattern. That, of course, can change. We’ll see what happens in the next four to six weeks. But futures markets do seem inclined to agree, as we’ve seen, that those target rate probabilities now tilting in favor of no hike after being in favoring a hike as recently as last week, and more so favoring hikes over the last several weeks. But we’ve seen that come down and we have now, as of this week, we have tilted in favor of no hike. So I think that’s where we stand for this week.

Now taking a gander at the comment section after last week, I did encourage you and ask you to engage with us and several of you did. And we’re going to isolate on one here this week from YouTube. User @rodeoswing stating, quote, “Uncertainty is the enemy of investment. Forward guidance is simply one tool the Fed can use to encourage prudent investment into some known, parentheses, (stable) interest rate environment. Uncertainty discourages investment and can cool a market in which one’s boss won’t tolerate rising rates, even when that is arguably advisable ‘medicine’ “, end quote. So I’m inclined to agree with you and thank you for commenting, by the way. I’m inclined to agree with you that uncertainty definitely discourages investment. A common chart in our keynote decks for us ITR Economics keynote speakers for really the last year and a half has been one displaying the Economic Policy Uncertainty index, which has shown massive, massive uncertainty elevation over the last eighteen months, whether it was from tariffs last year, instead of trade war last year, actual war this year. And actually in June, we saw that uncertainty, economic policy uncertainty index at the highest level ever, which I viewed as a combination of the re-ignition, we’ll call it, of the conflict with Iran, as well as the initial comments from Kevin Warsh, back in June. So, you know, obviously that’s a problem. And I agree that uncertainty is a problem. And I think maybe where I, maybe where we might slightly differ is that I maintain that forward guidance is not the only way to get to certainty. I think doubling down on what I said last week, again, I think we would all probably like clarity on what exactly the Fed is watching and going to be reacting to from a data standpoint, which I think we’re still left a little bit wanting there. And if we can get clarity on that, I think I’ll take that over carefully worded statements and forward guidance from the Fed, and we may get that coming out of the Fed’s Jackson Hole meetings later this month. So we’ll be talking about that on this program here this week. So there are also a couple of comments agreeing with me completely. So you know who you are. Thank you folks, didn’t pay to do that. So not the most exciting data week coming up next week. So keep the comments flowing and I’ll keep an eye on them and pull them in as I see fit. No swearing please. So we’ll see you next week on Fed Watch.