Fed Watch – 2/20/2026

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

Okay. Hi, I’m Lauren Saidel-Baker, and thank you so much for joining us for this very eventful February 20th edition of Fed Watch. Well, we knew that it was going to be a big data day. We were scheduled to get releases today on fourth quarter GDP, consumer expectations, new home sales, personal consumption expenditures, personal income data, permitting data, but what we didn’t know is that we also were getting a big news hit today in terms of the Supreme Court’s decision on tariffs.

So, we are going to unpack a lot of these trends today. This is just going to be a quick episode of FedWatch because a lot more information is coming from your ITR economist. Please do touch base with them if you have any questions about what this news or these data releases mean for you or for your business. But let’s start with what we knew was coming, GDP. Fourth quarter GDP, you probably saw the headlines that growth was down and inflation was up. It’s kind of a dour view of the economy. And so when we say down, I don’t want anyone to be caught off guard by those headlines. This was not a recessionary result for GDP. So all of those doom and gloom headlines, all they are doing is they’re comparing the actual fourth quarter GDP result to where the median economist kind of consensus expectation had been. So anytime you say GDP came in lower than expectations, the question is necessarily, well, whose expectations? On a headline basis, you’re seeing GDP growth of 1.4% in the fourth quarter. But please do keep in mind that 1.4% is what we call an annualized number. That is not how we do things here at ITR economics.

So if you want to compare to our forecast, this GDP result, it’s actually very much in line with what we had been expecting for the fourth quarter. You’re going to see a lot more about this coming out, especially soon in our trends report. So please look there for more information. But overall, this is not a collapse in all of GDP. This is certainly not a recession. Really where we saw that softness, where we saw some pullback in the individual components, it was in the government piece. And that’s very much expected because we had the longest shutdown in government history. So we also had a very mild negative contribution from the export side, just due to the way their calculated exports are backed out of GDP. This was not a massive crater in growth, but again, was slightly lower than consensus expectations. But let’s turn to the second part of that headline that I know you’re seeing today. Inflation is up. That is true. The PCE data, which critically core PCE is the measure of inflation that the Federal Reserve likes to watch, that came in at 3%.

Headline PCE came in at 2.9%. These are both a bit higher than the CPI data that we saw last week. That had been showing a disinflationary trend, showing further decline, further movement toward that 2% target.

Overall, though, if you’ve been sticking with us at ITR, this probably won’t surprise you. We are talking about a number of major inflationary drivers. Inflation is certainly not in the rear view mirror. We do have many of these pressures coming to the forefront, and we’re seeing these reflected in that PCI result. But let’s round out our episode today with that massive news that the Supreme Court struck down President Trump’s ability to impose tariffs based on a 1977 Emergency Powers Act. This is how, in early 2025, the Trump administration put many of their tariffs in place. Now, critically, this is not the only way that they have to put tariffs in place. It was just the quickest, the most immediate, and the one that didn’t require congressional approval. So to say that tariffs are struck down, there’s a lot of uncertainty still to come.

Will they put these tariffs through in other ways? Will they maybe seek congressional approval this time around? Or will there be rebates to folks who have paid tariffs in the past? The administration has already said they do intend to impose fees in other ways that will stand up to judicial scrutiny. We don’t know exactly what that looks like yet. So again, this news has just dropped this morning. We’re going to see a lot more fallout to come. But the one thing that I want to mention in this episode is that just because tariffs have been struck down in this court ruling, that does not necessarily mean, going back to our last topic, that inflation won’t necessarily be higher. We had been expecting to see the full impact of tariffs that pass through to consumer peak in the relatively near term, and then the trends start to dissipate. So this is not a wholesale 180 on what tariffs mean for inflation. And I’d like to remind you, even just in that PCE result that we saw today, a lot of the contribution to price pressures, they came from the service side of the economy, not the good side. And critically, tariffs are impacting goods much more than services. So there are still pricing pressures out there. If you are concerned about your business and what that means for you, for your cost, if you think you might get mired in some profitless prosperity because of it, please reach out to your ITR economist. We are here for you throughout all of this volatility. I know there’ll be a lot more to come, but we’ll be right here to unpack it for you on Fed Watch.