Macro & Market Musings | 8/14/26

by Brian Jacobsen, PhD, JD, CFA®, CFP®

Comments based on information available as of 5:15 am CT on 8/14/2026

Growth: Help Wanted

After last week’s disappointing jobs report, this week’s data offered an important counterpoint: businesses don’t appear to be preparing for a downturn. Small-business optimism jumped to its highest level in nearly a year, with hiring plans accounting for much of the improvement. At the same time, 36% of small businesses reported having jobs they couldn’t fill. Weekly unemployment claims also remained subdued at 209,000. Companies aren’t hiring aggressively, but they aren’t firing aggressively either. Businesses wanting to expand may increasingly discover that finding workers, not finding customers, is the bigger constraint.

Inflation: No Victory Lap Yet

For once, inflation delivered two pieces of good news in the same week. Consumer prices rose just 0.1% in July, lowering the year-over-year inflation rate from 3.5% to 3.4%. Core inflation slipped to 2.5%. Then producer prices were unchanged for the month, helped by falling energy and goods prices. That’s real progress, but there’s enough underneath the hood to keep the champagne corked. Core producer prices rose 0.4% in July and remain 4.7% higher than a year ago. Energy also provided another helping hand in July that may not be repeated in the August data when it’s released. Inflation is cooling, but the Fed needs more than a couple of good reports before declaring victory.

Policy: Two Handed Economists

The week’s inflation reports took some pressure off the Fed, but they didn’t solve its bigger problem. Cleveland Fed President Hammack argued Thursday that rates should still be raised. On the other hand, Richmond Fed President Barkin said existing restraint may be enough if today’s inflation shocks fade. Markets increasingly favor patience. But even if the Fed leaves short-term rates alone, Washington is putting pressure on the other end of the yield curve. The federal budget deficit hit $432 billion in July, bringing the fiscal-year shortfall to roughly $1.8 trillion with two months still to go. The Fed controls an overnight interest rate. It does not control investors’ willingness to finance ever-larger deficits. That’s increasingly an important distinction.

Looking Ahead: Reasonable Doubt

Stocks celebrated the week’s relatively friendly inflation news with the S&P 500 hitting another record high as Treasury yields and oil prices retreated. Now the question shifts from prices to demand. So far, consumers aren’t cutting back so much as being more selective about where they spend. That’s particularly important with markets priced for a fairly pleasant combination: continued growth, cooling inflation, and a Fed that can remain patient. None of those assumptions looks unreasonable today, but the data has a nasty habit of casting doubts on what seems reasonable today. Record highs aren’t a reason to run from stocks, but they are a good reason to remember that expectations rise along with prices and the news can throw a wildcard.

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