Fed Watch – 3/27/2026

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

Hello, I’m Brian Beaulieu subbing in on Fed Watch, March 27th, 2026. One more time. Didn’t know there was going to be one more time, but I’m always happy to help filling in for Lauren Saidel-Baker today. She could not be here. So it is my pleasure.

The big news for us here at ITR was the producer price index, we took a real hard look at that. It’s been in place for going on two years now, and has a 99.7% accuracy rating. So we looked at this with the war going on with all the uncertainty still going on. Should we be tweaking or changing this forecast? And the answer came back after I looked at it, the new deputy chief economist looked at it, Jackie, who was chief economist looked at it. We all came back and said, no, we already had baked in some increase in producer prices in 2026.

So after discombobulating the whole thing and putting it back together, it came out to be essentially the same 2.9% increase in the producer price index for 2026. Now that’s going to be up from where it is today in terms of inflation rates. You take that and the Fed’s concerns about oil and other commodities, like copper is up also, it’s not just oil. And there’s going to be a reticence on their part, we think, to lower interest rates. If they are lowered in May, it’s going to be more for administrative pressure reasons, shall we say, as opposed to economic reasons. Going back to oil for a moment, several things come flooding into my head. One, be very careful when you’re reading any of the headlines on your phone, or that’s where most of us get our news. I got into the habit of whenever I saw a headline that said, you know, war heats up, oil prices spike, I would open up my app to see what was going on with oil prices. And more often than not, there was no spike. In fact, on several days, oil had come down $2 to $3 a barrel from the prior day. So don’t live by the news, please don’t think that that’s showing you what the data is actually doing.

When it comes to the producer price index, oil really directly influences 5% to 10% of the PPI. Of course, if you look at indirect influences like transportation costs, fertilizers, plastics, etc. Oil comes in more like a 30 to 50% weighting influence on the PPI. So the higher oil prices certainly tells us that we’re going to see that escalation in PPI pressures. The consumer price index is already running above where the Fed is happy with. We saw the CPI 3 to power rate of change and 112 come down to 2.4%, which is really good news. It came down from 2.5%. But the Fed rightly is concerned that that doesn’t even begin to reflect the pass-through cost structure from the war. So I would be surprised if they’re going to lower interest rates.

The 10-year government bond yield on Thursday opened at 3.89%. As of Monday, it was down to 3.87%. And it may trip down from there also. That’s still well above where we were at the beginning of this month. So the bond market is not reacting very well to these pricing uncertainties. But I checked on the the corporate bond market. Really, it’s an index that shows how it’s functioning. And while there’s some elevated stress in the bond market, there’s no liquidity crisis to be concerned about whatsoever. it’s going to be okay is what we’re trying to tell you.

There is some weakness in employment, but our analysis, our look at leading indicators tells us that that’s going to be improving. Expect the dialogue to shift away from the Fed cutting interest rates twice to maybe they’re not going to cut interest rates to they’re likely not going to cut interest rates. The deeper we go into 2026 continue to expect inflation to generally heat up like I mentioned with the PPI going up to 2.9%. In 2027 we have that soft landing in the economy so we have the producer price index rate of inflation easing back down to 1.8% about where it is today and then it heats up again in 2028 and 2029 rising to four or better than four percent inflation.

That’s when things start to get hot out there in the 2029 period between now and then you still have time to really focus on those margins figuring out how you’re going to avoid profitless prosperity. Here at ITR we have a new service where we create a cost index specific to your company. It’s in consultation with you and we can show people when the nexus is going to occur where their margins are going to be under adverse business cycle pressure so you can be figuring out today what to do about it tomorrow when you are confronted with that situation.

There’s lots of ways that you can be prepared for this future. Just put down the daily or minute by minute blow by blow news and start focusing on the internals of your business. It’s all going to be okay folks. We’ve seen this mess before. It’s not new and you and I are reading the same stuff probably about how all of this is catastrophic etc. For the United States it matters not. It matters more for China. It matters more for exporters like Iran. It matters more for exporters like Venezuela. But for here in the United States we are fine. The lights are going to keep burning. Don’t worry about it.

It’s going to be okay. Just follow the data one last time. It’s going to be okay. Thank you for listening to this edition of Fed Watch. I want to thank Joy Beachy, our producer. I’ve enjoyed working with Joy over the years that I’ve been doing Fed Watch and I wish you all Godspeed.