Fed Watch – 8/7/2026

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

Well, the dust is settling after last week’s Fed meeting, and we’re left asking ourselves, is the September rate hike more or less likely? Thank you so much for joining us for this August 7th edition of Fed Watch, I’m Connor Lokar, settling into a groove here on Fed Watch. We have a few lingering items to chew on from last week.

So as we’ve rolled through the weekend, got into a week now removed from that Fed meeting, it certainly seems like the big banks are not happy about the lack of forward guidance, Goldman Sachs among them based on some of the quotes that I was reading this week. It seems like the general gist of the what I’ll call freaking out of Wall Street is that the elimination of forward guidance is going to be a problem, which I’m struggling to sympathize with because, as Warsh put it, you know, market prices can respond to the economic data, and in the direction, quote “In magnitude that they see fit,” unquote. And his feeling, his being Fed chair Kevin Warsh, is that the the central bank does not need to be the center of attention everywhere, always, all the time. Which I find myself sympathizing with that view, even though we find ourselves here on a program that is called Fed Watch. I do think that it obviously warrants some of our attention, but I think we might have overcorrected in a certain direction as a society and an economy.

So I’m not sure how sympathetic I am of the horror of having to actually translate economic data like we do here at economics versus maybe, you know, trading on what the Fed is saying or what inside information we’re going to get on what the Fed is going to do. Because quite frankly, I’m just not sure it was ever supposed to work that way in the first place. And maybe there’s a lot of folks out there in the financial world that really only know how to do business in this era of forward guidance that we have lived in since the Great Recession that didn’t always used to be this way. But maybe, maybe I’m off base. Maybe I’m wrong. So I’d love to hear in the comments. So you folks, you let me know. Do you miss, are you going to miss the air of overly manufactured press statements and forward guidance? Or are you feeling this free wheeling and less preconceived style that we appear headed for? So I find myself all right with it, but that’s just Connor talking. So who knows?

So one of the things that I think I do sympathize with on the other side of the fence is to a certain respect, the concerns about not knowing which data the Fed values. And I think that that is a fairer critique than maybe necessarily being up in arms about not being told to the letter exactly what’s going to happen. I think that when we, you know, look at the framework for like, what is their decision framework going to be based on? Is it going to be on, you know, PCE for inflation, as Warsh confirmed last week, or is it going to slowly become another metric? And how quickly is that going to be told and signaled to actually, this is the data that you need to parse out. So if I were to throw a bone to the crowd that is not loving this new transition, I would certainly appreciate some clarity on the Fed or either affirming, reaffirming what metrics they’re watching the closest. So if they want us to, going back to last week, you played the, play the ball not the referee, I want to know which ball that we’re playing with here, whether it’s a baseball, tennis ball, football. I do want to know what I’m supposed to be paying attention to. So picking up something else from last week again, and what I was really left grappling with over the weekend and into this week is, again, this idea that Walsh introduced, that the run up in long bonds is essentially, essentially commensurate to hiking on the short end. And his commentary seemed to indicate that, well, you know, we’ve had some carnage on the long end and that that tightens some parts of the economy, and that’s good enough. And we certainly saw long bonds really spiked on those comments last week, which I was reluctant to overreact to at the end of last week, just less than two days removed from the meeting.

And and now here later this week, we see those ten year yields have relaxed a little bit closer to where they were before the meetings. But I think it did start to move the probability market as we look at the fall in terms of well what can we expect for the September meeting? Prior to last week’s meeting, markets were indicating pricing and anticipating that we would actually likely see a rate hike in September, that that was firmly on the table. And we’ve seen those odds retrench somewhat. Now we’re seeing that the probability of a rate hike is now just barely above 50/50, where it was much more of a conceived probability at that time that we saw before last week’s meeting. So it seems to me that the market is digesting the comments to mean that rate hikes are maybe less probable depending on what we see out of the long bonds, the longer end of the bond market here coming up. So, our thoughts and prayers are going to remain with the housing market, if that’s the way the Fed is going to choose to handle things because we’ve seen renewed upward pressure on mortgage rates as a byproduct of these longer term yields rising, and that’s really just insult to injury for a housing market that we know has been struggling recently.

So to this week, some of the data that we came, that came out this week and certainly would indicate an environment maybe that would warrant a rate hike later this year. We saw that the economy remains, despite a relatively weaker GDP report last week coming out in the prelim number, you know, some deceleration, but the core components were actually all right, we see that industrial production is in phase B, it’s accelerating, it’s healthy manufacturing accelerating, and healthy. Our internal ITR leading indicators for July ticked up. Our ITR retail sales leading indicator ticked down barely, barely from the June reading. And we saw that the PMI came in ripping hot with a 55.6 on that raw reading, and it wasn’t all price. We saw the new orders component PMI came in at 56.7, monthly rates of change up on both of those, and we actually saw the PMI pricing component while very high, it actually did relax somewhat from the June level. Now we did see total non-farm job openings did come down a little bit, a little bit more than normal for what we’ve seen in recent months. But all in, I think we see an economy that’s going to continue to run hot and healthy through the balance of the year, and that may yield an environment that supports a rate hike. Would it be maybe an environment that doesn’t get one, depending on what we see out of the long end and how the Fed interprets that. So looking forward to track that further and we’ll see you next week here on Fed Watch.