Fed Watch – 2/27/2026

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

Hello, everyone. This is Connor Lokar, senior forecaster here with ITR Economics, filling in again here on today’s Fed Watch, recording on February 27th. A bit of an exciting week, maybe not quite as exciting as last week with the tariff news and the GDP release that Lauren briefed you on, but some additional data items since then that I think are worth our time here today. So the biggie today was the belated US Producer Price Index release for the month of January, which came out relatively warm, at least relative to consensus expectations, particularly when you look at that core component. Relative to our forecast and expectations, I wouldn’t say it was anything overly anonymous or concerning, but the street found it a little bit worrisome, and I think that that just takes us as we break into March here in just a few days, increasing that probability that we are gonna see that pause and non-action on a rate cut next month on the heels of a relatively stronger January jobs report.

We’ll have to see how February looks when we break into next month, but I think that the hot PPI number there, even with CPI running not quite as concerningly to the upside, likely put some further hot cold water on the idea of any sort of rate cut. Interestingly though, I think in my mind anyway, the bond market seemed unmoved by the news. We actually saw bond yields on US 10-year Treasury yields dip below 4% today, which is a little bit surprising given the backdrop of that hot PPI number or warm in number anyway, given that we haven’t really seen 10-year yields below 4% on any sort of sustained basis, and again, this is just happening today. And hasn’t even flirted with that number since going back to the fall very briefly in November, a couple of times in October. So that’s interesting. So that could be a bond market indication, maybe some future growth concerns, maybe some indifference towards that inflation number, maybe some deference towards maybe labor market growth concerns.

Those have been the headlines here lately. But something to the upside for inflation that we did see is earlier this week, we got updated money supply data. And when looking at money supply on a deflated basis, we saw that start to accelerate in January, I should say continue to accelerate, but setting a new growth rate peak there up 1.8% from January 25 on a month over month basis, that represents the fastest rate of growth for a deflated money supply in almost four years, 46 months to be exact. Now, given the lead times we typically see there, that’s not necessarily a tell for 2026 inflation, that’s peaking into next year at this point, but certainly isn’t aligned with our thinking that we believe that inflation is going to be here to stay in generally building some upside pressure as we move through the balance of the 2020s here, what’s left of it anyway. So we think that probability of no action in terms of not getting a rate cut for next month is still gonna stand in a little bit of wrap up from last week. So we were fresh on the heels of the Supreme Court tariff decision.

And then in the week subsequent, we have seen the Trump administration applying a new flat 10% tariff, this time applied under section 122 of the 1974 Trade Act. So perhaps extinguishing any hopes of those tariffs going away and staying away and maybe being possibly a source of downside inflation pressure this year, which I think was a dubious assumption initially for those that had it just because prices are always quick to rise and slow to fall.

And we’ve seen now that some of those tariff rates are now being backfilled under some different and likely more durable legal statutes here as we move forward. So that’s the update as I see it anyway. So thank you for letting me fill in with you folks here on this week’s Fed Watch. We’ll see you next time.