Economy in Brief: 2026

The Federal Reserve left its policy rate unchanged at the conclusion of last night’s meeting, a decision that had been widely expected — the futures market went in pricing only around a one-in-three chance of a hike — but one that split the committee unusually sharply, with three of its members dissenting in favour of an increase to counter inflation that has now run above target for more than five years (chart 1). Yet whatever the near-term path of official rates, the real cost of capital has already moved decisively. The real ten-year yield has climbed to around its highest in two decades, and it has done so in step with a run of firmer-than-expected economic data (chart 2). Behind that resilience lies an investment cycle that is quietly gathering pace. The July flash surveys show the upturn led, unusually, by manufacturing rather than services (chart 3), and the hard data are beginning to agree, with manufacturing orders across many major economies turning firmly higher (chart 4). Equity markets, for their part, have taken elevated real rates in their stride, the bond–equity relationships that fractured in 2022 having since been restored (chart 5) — the signature of a market that believes it has entered a higher-return, investment-led regime. The optimism is not unqualified. A fresh round of US tariffs and a sharp sell-off in chip stocks, led by South Korea, are reminders that the payoff from all this spending is far from assured. And the boom is colliding with a physical constraint: since the breakdown of the US–Iran understanding, Baltic tanker and gas freight rates have surged even as dry-bulk rates have stayed calm (chart 6), a pointed warning about the security of the world’s energy arteries.

• (Temporary?) relief on price pressures
• Respectable income gain and active spending by consumers

• The quarterly gain was led by personal consumption and business spending on equipment and intellectual property.
• Inventory investment and net exports were meaningful drags on overall growth.
• Domestic demand growth accelerated to well above trend.
• Reflecting the jump in energy prices after the escalation of the US-Iran conflict, GDP inflation accelerated markedly.

• New claims rose by 9,000 to 197,000 in the week of July 25, after reaching their lowest level since 1969 in the July 18 week.
• Continuing claims declined by 7,000 to 1.782 million in the week ending July 18.
• The insured unemployment rate was unchanged at 1.2% in the week of July 18.

• Both applications for loans to purchase and applications for loan refinancing declined in the latest week.
• Interest rate on 30-year fixed-rate loans rose 9bps to 6.96%.
• Average loan size edged up.

• The Conference Board’s measure of consumer confidence fell to 90.8 in July from 92.2 in June, continuing its downtrend since early last year.
• The Present Situation index fell to 114.9, its lowest reading since February 2021. The Expectations index was unchanged at 74.7.
• Inflation expectations one year ahead fell to 4.5% in July from 4.9%.
• The labor market differential fell to 3.1% in July, its lowest level since February 2021, from 3.8%, pointing to further softening of labor market conditions.

• Deficit: $101.46 bil. in June, down $4.43 bil. (-4.2%) from May’s $105.89 bil.
• Exports -1.8%, second straight m/m decline to a five-month low, driven by a 4.4% drop in exports of industrial supplies & materials.
• Imports -2.6%, first m/m decrease since Jan., w/ all end-use import categories down, led by drops of 6.3% in other goods and 3.8% in nonauto consumer goods.