Fed Watch – 1/16/2026

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

Hello, welcome to Fed Watch. Today is January 16th. The Federal Reserve recently met and they’ve made it official, we’re not going to see a rate decline in January. That’s not really a surprise given the latest inflation numbers and some consternation about independence, they were more likely to lean in that direction than not. Will they cut rates in 2026? Well, their own dot plot says that they will once anyways. We’ll see.

Looking at the econ data, you know, the Fed really could have gone either way. The November retail sales data was poor. Of course, that was still impacted by the government shutdowns. So we’re not sure how good the quality of the data is, but November was a stinker when it comes to retail sales. But our own ITR retail sales leading indicator is rising. It’s rising through the end of the year and is at its highest level in a little over three years. So they likely made the right call. Automobile retail sales, however, are not doing well, decidedly not doing well, not only because the tax credits were removed for EVs, but the automobile loan delinquency rate continues to climb. Those rates-of-change for automobile retail sales are in phase D, and we continue to expect weakness in the first half of 2026 in that realm.

Housing, we’re likely going to be taking our housing forecast down for 2026. It’s amazing how much overbuilding has occurred. And that was a bit of a surprise. You know, we heard about in 2025 lack of inventory, lack of inventory. It’s probably the wrong inventory. But home builders overbuilt in 2025, and we’re going to have to see some adjustment in 2026 before the housing market starts to stabilize. The good news there is, though, mortgage rates, 30-year fixed rate mortgage dropped 10 basis points from last week, which is great. And when we, you know, we do a thing where we look at fixed rate mortgage and we subtract out the US government 10-year bond yield to gauge whether mortgage rates are affordable or not on the larger scheme of things. And that 10 basis point drop and the fact that the 10-year government bond yield hasn’t gone anyplace means the meter or the needle went a little bit more toward affordability. And we expect it’s going to continue to move in that direction in small increments in the first half of 2026.

So all of that’s going to be some good signs in terms of the economy doing well, better in the second half of 2026, which is what we’ve been saying. The economy is only going to be in a very modest rising trend, but we see it in manufacturing even, manufacturing across the spectrum, we’re looking at some phase B rise. It’s being held down to a very slow pace because of the weakness in automotive. But you look beyond that segment and we are seeing manufacturing begin to pick up a little bit of steam. US Total Industrial Production for December came out today and that came in with a 99.4% accuracy rating from a forecast that we put together back in 2024, August 2024 to be exact. So that’s behaving as anticipated.

I also did a quick check to see if we’re seeing any potential fallout from the Department of Justice going after the Federal Reserve. The stock market’s been relatively quiet, nothing there to report on. And as I just mentioned, mortgage rates went down 10 basis points from last week. And the US government 1-year bond yield at 4.172%. Essentially, it’s in a little noise pattern since January 2nd of this year. No big deal there. So looks like, at least for now, we have dodged a bullet in terms of turmoil coming through and wreaking havoc on the marketplace.

We’re keeping an eye on oil. We continue to expect oil is going to be moving higher in 2026, but not right away. We just reviewed our producer price index forecast and that PPI number, which is the precursor to the CPI, we expect is going to be rising higher over the next several quarters. And therefore, the Fed is going to have ammunition if it wants to lower to lower, but if it doesn’t want to, the PPI and certainly the consumer price index trends will have them sitting still on these interest rates. Either way, look for the marketplace to give you some relief, bond market, et cetera, not the Federal Reserve.

Expect the economy to modestly improve in 2026. Most of the gains you’re going to experience in ’26, however, are coming from you taking share, you being very aggressive in the opportunities that present themselves to you. That’s the best way to go is rely on yourself rather than on the Federal Reserve or anybody else for that matter. There are going to be opportunities. Seize them and protect your margins in 2026. You do those two things, you’ll be happy with the year. Thanks for watching this edition of Fed Watch. Sitting in for Lauren Saidel-Baker, it’s Brian Beaulieu, and it’s great to be here one more time.