Fed Watch – 6/26/2026

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

This week we lost Alan Greenspan, but gained a whole bunch of data. This is ITR Economics Fed Watch. Well, Alan Greenspan, the former chair of the Federal Reserve, did pass away at age 100. I’ll let you read the symbolism into that yourself. But let’s dive into the data because this was a very data heavy week.

Starting with that big headline, which was the new GDP revision. We did in fact see the GDP estimate revised higher to an annualized 2.1% rate. I’ll remind you, that’s not how we track things here at ITR, our forecast is very much still intact. Directionally, this was a nice upward lift to 2.1% from 1.6% in the prior estimate. However, beneath the surface, the details weren’t all that great. Critically, that consumer spending portion of GDP, which we are putting a lot of weight on in this moment, that was actually revised downward pretty significantly from 1.4% to just 0.5% on that annualized basis. The biggest upward change in contribution to the GDP estimate, that was a downward revision to imports, which, as you know, are subtracted against the total. So this isn’t the kind of core strength in the economy that the headline might signal. If we peel back the onion, the biggest sector by sector contributions were coming from the information segment, professional services, government did pretty well as well, but also durable and nondurable goods manufacturing. So as far as it goes for the ITR forecast, stay the course, no change expected here. And please check in with us in the new edition of the Trends Report for more detail there.

But I want to hop over to the Fed’s big gauge of inflation, which also came out on Thursday. PCE inflation, you’ll see some shocking headlines up the most in three years, this rate did reach 4.1%. Core PCE, that more nuanced version excluding the volatile food and energy categories, still up much more than the Fed would like to see at this point, 3.4% on an annual rate. Again, the gains here were really led by energy, related goods and services up 4%. That’s why you see that core number just a little bit lower. But we are still seeing those pervasive inflation drivers. Housing, for example, still saw rise, albeit a much more mild pace of rise. This is not just the Strait of Hormuz effect anymore. We are seeing those broad inflation trends. This is something the Fed can’t ignore. So we did see some odds shifting, perhaps even pulling in the timing of that next expected rate hike, potentially up to the September meeting, although I think the jury is still out. There’s going to be much more data to come out over the summer before we have certainty on that next rate move. However, big news at the end of the day, this reading really in my mind solidifies the fact that the next rate change will be up and not down. So please don’t be waiting for those lower interest rates. If you need to do any borrowing refinancing, now is the time to do it, please don’t be waiting on the sidelines.

We also saw some data on personal savings. The personal savings rate rose on the month to 3%. But let’s step back and look at the bigger picture here. Inflation is still taking a bite out of the consumer’s ability to save. This rate is below the long term average, still is a little bit challenged. As far as consumer health goes, we’re seeing some stability here. Again, we are watching very closely things like the disposable personal income. That 1/12 rate of change is technically back in positive territory as of the May reading, but just barely positive. After we did see one month of negativity in the 1/12 in April. On a 12/12 basis, which is where we really focus here at ITR, that growth is still slowing. We have major concerns about tentative nascent decline in inflation adjusted earnings. That’s really going to constrain consumer spending going forward. On the positive side, though, consumers do still have the capacity for more borrowing. And from lenders, we are seeing easier access to credit. So it’s not all downside here. However that borrowing does come with additional repercussions. This is a much more nuanced view of the consumer than we’ve seen recently. Potentially still getting some positive wealth effects, that’s a good thing. If you see your home worth more or your stock portfolio doing better. But those are less liquid sources of funding. Keep in mind, your home price isn’t the thing that’s going to be putting fuel in your gas tank next week.

Overall, some mixed messaging here, but still general stability. I think this does clear up something of the inflation side for the Fed as we look at these increasing gauges coming through. As I mentioned, we’ll have a lot more data over the summer. Watching the Fed messaging will be very critical going forward. But please stay with us here at ITR Economics, we are taking our signals from the bond market at this point in time, and we hope you’ll stay here as we interpret all of those mixed signals going forward right here on Fed Watch.