Comments based on information available as of 5:15 am CT on 5/29/2026
Growth: the shock absorbers are mostly gone.
A few months ago, consumers had some nice economic shock absorbers: the anticipation of generous tax refunds and a modest savings rate. This spring, those buffers are mostly spent. Refund dollars went straight into the gas tank. April’s personal income and outlays report showed the saving rate falling to 2.6%, the lowest since June 2022. Real consumer spending rose a feeble 0.1% while real disposable income slipped 0.5% on the month. The economic path forward will depend critically on quickly restoring confidence and that depends on retreating fuel prices.
Inflation: rotten to the core?
Headline inflation hit 3.8% in April, the hottest reading since 2023 and up from 3.5% in March, driven almost entirely by the Iran-war oil shock. The real question is whether energy inflation is seeping into everything else. So far the answer is encouraging at the margin: core PCE rose just 0.2% on the month, cooling from March’s pace , even as the year-over-year core rate ticked up to 3.3%. The annual figures look ugly because of where we’ve been, not necessarily because of where we’re going. There is still little evidence of broad spillover into core goods and services inflation.
Policy: “Don’t underestimate the value of doing nothing” (A.A. Milne)
After spending late 2025 teeing up cuts, the Fed has pivoted hard. Markets have mostly anticipated the shift by the Fed. There are risks to the labor market where they’d prefer to cut, but there are risks to the inflation outlook where they’d prefer to hike. To square that circle, they will probably just continue to talk tough about possibly hiking while actually staying on pause. Nothing is so bad that they need to do something. Sometimes, the best decision is to do nothing.
Looking ahead: A thin margin for error.
From here, almost everything hinges on two variables. First, how quickly gasoline prices retreat. Second, whether corporate margins hold up. Equities are sitting near record highs, betting the oil shock proves transitory. Maybe it does. But with real incomes falling and the Fed not likely to run to the rescue of the market, there is precious little room for error. Stay invested, but stay flexible.
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