Macro & Market Musings | 8/21/26

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

Comments based on information available as of 5:15 a.m. CT on August 21, 2026.

Growth: Different Speeds

The economy increasingly looks like several cycles happening at once. July retail sales fell 0.6%, their weakest performance in more than a year, while single-family housing starts dropped nearly 10% to their lowest level since late 2022. But the details were less alarming than the headlines. Restaurant and bar spending rose 0.5%, manufacturing output increased again with help from high-tech equipment and the AI buildout, and weekly unemployment claims fell to just 206,000. Even housing offered a hint of resilience as permits rose despite the decline in starts. Consumers and housing are feeling the weight of high prices and interest rates, while business investment keeps supplying horsepower. That is not a recession, but headline growth can look healthy while important parts of the economy feel anything but. As long as layoffs remain this low, July looks more like a breather than a turn.

Inflation: Rearview Relief

July’s inflation numbers keep looking better, but they are also starting to look dated. Import prices fell 0.4%, helped by a 7.5% decline in petroleum prices. Since then, the 60-day ceasefire between the U.S. and Iran has expired without a permanent agreement, oil has climbed back toward $90 per barrel, and gasoline prices have risen to almost $4.10 per gallon from $3.85 a month ago. Higher energy prices do not automatically create lasting inflation, but they hit consumers quickly at the pump and businesses through transportation and production costs. Cooling core inflation is genuine progress, but a supply shock does not care how well the underlying trend was behaving. July’s inflation relief looks good in the rearview mirror. August and September may look different through the windshield.

Policy: The Long and Short of It

The minutes from the Fed’s July meeting were considerably more hawkish than the recent inflation data. The FOMC voted 9-3 to hold rates at 3.5% to 3.75%, with three policymakers preferring a quarter-point increase. The minutes suggested that the appetite for tighter policy extended beyond the dissenters, with several participants favoring a hike and many seeing additional tightening as potentially necessary if inflation remains too high. Meanwhile, the bond market is doing some tightening of its own. After the 30-year Treasury yield climbed toward its highest close since 2007, the Treasury Department said it would more than double repurchases of longer-term debt to support market liquidity. One part of Washington is debating whether short-term rates need to rise while another is trying to keep long-term rates from becoming disorderly. The Fed still controls the overnight rate. Investors set the other end and they are demanding to be paid.

Looking Ahead: Higher Ground

Next week provides an unusually clean test of the smooth sailing story. Investors will get an updated estimate of second-quarter gross domestic product and July’s personal consumption expenditure inflation report before turning their attention to the Fed’s annual Jackson Hole symposium. Kevin Warsh’s first keynote as Fed chair is expected to focus on longer-term structural issues rather than near-term guidance, but markets will parse every word for clues about September. With oil rising, long-term yields elevated, stocks backing away from their highs, and a divided committee behind him, the margin for pleasant surprises has narrowed. Investors do not need perfect data. They need enough evidence that growth can slow without breaking and inflation can cool without another energy detour. Both still look possible. Neither looks guaranteed.

This material is provided for informational and educational purposes only and should not be construed as personalized investment, legal, or tax advice. Information presented is general in nature and may not be appropriate for all investors. Investment recommendations, if any, are not intended for any specific individual or situation and should not be relied upon as the sole basis for making an investment decision. All investments involve risk, including the possible loss of principal. Past performance is no guarantee of future results.