Fed Watch – 10/30/2026

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

It’s been something like a perfect storm of data this week GDP, PCE, and a Fed decision. Let’s unpack what it all means. Hi, I’m Lauren Saidel-Baker, and this is our October 30th edition of ITR Economics Fed Watch.

Well, we got our Fed decision, and it was something of a moot point. No change to rates, as was widely expected. I do think December is still firmly on the table for our next rate increase. Not certain yet, but we are certainly seeing movement in that direction, both from things like Fed officials themselves, the dot plot, etc., as well as from the market. And Warsh has been very clear, he wants to take more signals from the bond market. We agree with that at ITR, we think that is a great move. So, there’s market expectations I think are getting even more attention than they usually would. The vote was a little bit more interesting than usual at this week’s meeting, it was not a unanimous hold, it was a 10 to 2 decision. And those two dissenting votes were both in the direction of raising rates. So, a little bit more evidence there that a few Fed officials are saying we haven’t done enough, inflation is not yet under control, we need to do more and we need to do it sooner. Clearly again, they were outvoted by the ten prevailing hold rate study votes. But what does that mean for December? I think again it all does come down to inflation. At the end of the day, we are not at 2% inflation, we are not near 2% inflation. And if anything, we’re moving in the wrong direction, from some of these more recent drivers, things like oil prices. We’ve talked so much on this show in the past about what those drivers are, why they are so widespread and more pervasive. And so when we get a data point this week, like we did that September PCE number, we saw that come in at 3.6% higher year-over-year. And even the core PCE, the measure that the Fed officials really love to focus on, that came in at 3.1%. Again, 3.1% is not 2%. So, with the inflation side of the picture clearly still hot, still running, elevated, and therefore still giving us that fodder for future rate increases, what is the other side of the Fed’s dual mandate?

Well, I don’t want to talk directly about the labor market, but a close correlation GDP overall, how quickly is our economy expanding. And we saw GDP numbers this week come out actually a little hotter than expected at 3.4% year-over-year growth, again stronger than expected. But what we really want to drill into here is the fact that that result was driven primarily by consumer spending, that came in up 3.8%, which is a strong contribution from really the most important core sector as we view it here at ITR. That tells us that the consumer, they still have a little bit of juice left in them. This is not a consumer that is so inflation weary that they’re cutting back, that they really are tightening the belt or battening down the hatches. Overall, the labor market is holding up quite well, we still see quite low layoffs, and even some improvement in the amount of hiring. So, I’ve talked about our labor market recently as a low hire, low fire environment. And I mentioned a few times that we at ITR expect by the end of this year for that to transition more into a still low fire, but maybe moderate hire environment. I think these are the early signs that we’re starting to see of just a little bit more business confidence out there. Some folks pulling the trigger, posting that position, finding the right person and putting them in those seats. So it isn’t that we see huge gains in employment, right? It isn’t that we see even significant wage increases once we adjust for inflation, but our consumer is still treading water on that income front. And remarkably, right now they’re willing to dip into their savings. We see lower savings rates, potentially even greater attention turned to credit, if we’re using the old credit card to make these purchases or taking out debt some other way or another. That is a choice that consumers are making to keep supporting this spending and therefore keep supporting this overall GDP growth.

But it wasn’t just there, another very large rise, and certainly as a percentage, when we look at these annualized numbers, was in private investment. And here we come back again to that tired old refrain of the data center build out, all of the amount of tech spending going on in the economy today. Overall private investment was up 19.4%, equipment spending specifically up a whopping 20.9%, and an interesting subcomponent here you’ll probably see some headlines about this intellectual property, up 8.4%. We also saw some amount of rebuilding inventories. So multiple things going on in this first print, again, of that headline beat to GDP.

So, what does this mean for the Fed and for central banks more generally? We also this week saw the ECB hold rates steady. So, on a global scale I would say no change immediately. Inflation is still the factor to watch. And until we see that inflation come under control, which is a tall order, I really don’t see much relief in rates or even any steadying at this level. We did also get an interesting announcement in this week’s Fed meeting, that the Fed will move from having eight policy meetings per year to only six. So, on the surface, I know some folks are saying that’s less room for rate increases, right? If we’re meeting less frequently, we won’t see rates go up as quickly. I really don’t think that’s the case, we were not expecting to see a rate increase at every single one of those eight meetings. And even if we did hypothetically enter a scenario that called for that, well, we could just see one 50 basis point increase instead of two 25’s, for example. Really what’s happening here is there’s an increased focus on data. So those other two of the eight meetings, those are going to be just for strategy, not for setting policy. I think this is Warsh really trying to gather consensus among those officials. He does have clearly a different view of what this institution should be responsible for. But we also get back to the more even spreading of data, for example, just this week, that PCE result that I talked about came out just after the Fed decision to hold rates. So, by setting up that more even two month cadence for some of these policy decisions, it’s just going to give us a different timeline. At the end of the day, if something extraordinary does happen, we have seen and probably will see again, the Fed can call an extraordinary meeting. They can meet whenever they choose to, to change policy, either within the interest rate environment or with some of these other, more unusual steps that we’ve seen during crisis times. Knock on wood, hopefully we won’t be headed there anytime soon, but if we do, we know the Fed has the ability to respond. Until then, though, looking for this general grinding higher environment. Keeping a close eye on inflation. That is the thing that’s going to determine the path forward beyond this meeting and beyond this print. We hope you’ll join us as all of that unrolls through the end of this year right here on ITR Economics Fed Watch.