Monetary Policy
Federal Funds Rate
3.63%
The FOMC held the target range at 3.50–3.75% on July 29 (9-3 vote). Chair Kevin Warsh delivered a hawkish debut at Jackson Hole on August 28, moving September hike odds from 32% to 56%. The August 5 employment situation report then delivered the decisive evidence Warsh needed: nonfarm payrolls surged +162,000 in August — far above the 53,000 consensus — while July was revised upward from −23,000 to +21,000. The back-to-back upward revisions eliminated the "first job loss in years" narrative entirely. Following the payroll surprise, CME FedWatch moved to 58% hike / 42% hold for September 16–17. With the labor market re-established as resilient and Core PCE stuck at 3.3% for two consecutive months, the case for a September hike is now the market consensus. The September 10 CPI is the last significant input before the decision — an acceleration above 3.5% would harden the hike case; a sharp miss toward 3.2% might give the hold faction late cover.
In plain termsThe Fed kept rates at 3.50–3.75% on July 29, and now markets price a 58% chance of a 25-basis-point hike at the September 16–17 meeting. The driver: August added +162,000 jobs — far more than the 53,000 expected — and July (previously reported as −23,000, the first job loss in years) was revised to +21,000. The labor market scare is over. Combined with Chair Warsh's hawkish Jackson Hole speech and two months of Core PCE stuck at 3.3%, the Fed has both the cover and the motive to hike. For borrowers, a September 16 hike would push the federal funds target to 3.75–4.00% — meaning credit card APRs above 22%, adjustable-rate mortgages above 7.5%, and new car loans above 7.8%. The September 10 CPI report is the last major data point before the decision.
Inflation ⚠ WATCH
Consumer Price Index (YoY)
3.4%
July 2026 CPI rose 3.4% year-over-year — down from June's 3.5% and the second consecutive month of disinflation after May's 4.2% spike. Core CPI eased to 2.5% YoY, the lowest since late 2024; shelter continued its gradual deceleration to 3.2%; energy rose +14.7% YoY. Despite July's directional improvement, Core PCE (the Fed's preferred measure) held flat at 3.3% for July — the same as June — giving Chair Warsh the data backing to speak hawkishly at Jackson Hole. Now, the August jobs report (+162,000, released September 5) has effectively removed the labor market as a counterweight to further tightening. With the employment picture reasserted as resilient and Core PCE stalled, the September 10 August CPI report is the last inflation data before the September 16–17 FOMC decision. A reading at or below 3.3% could provide marginal cover to the hold minority; a re-acceleration above 3.5% would make the September hike near-certain regardless of dissenters. CPI at 3.4% sits 140 basis points above the Fed's 2% target.
In plain termsInflation held at 3.4% in July — still well above the Fed's 2% goal. Grocery prices were nearly flat (up 0.1%) and gasoline prices fell in July, which was good news at the checkout. But the Fed's own preferred gauge — Core PCE — came in at 3.3% for July and hasn't improved in two months. With the August jobs report delivering a blowout +162,000 print, the Fed now has a healthy labor market and sticky inflation simultaneously — a combination that points squarely toward a September hike. The September 10 CPI report (covering August data) is the last major inflation reading before the September 16 decision. For consumers, 3.4% inflation means prices are rising faster than wages for most households; a September hike would add to borrowing costs on top of that pressure.
Labor Market
Unemployment Rate
4.1%
The August 2026 employment situation report (BLS, released September 5) delivered a decisive reversal: nonfarm payrolls surged +162,000 — nearly three times the +53,000 consensus — while the unemployment rate held steady at 4.1%. More consequentially, the BLS revised July payrolls from −23,000 to +21,000 (an upward swing of 44,000) and June up by an additional 11,000. The "first job loss in years" narrative that had dominated August markets was effectively erased. Payroll gains came broadly from leisure and hospitality, healthcare, and professional services; the information sector was the primary drag. Labor force participation remained at 61.4%. The 4-week moving average of initial jobless claims rose to 207,250 for the week ending August 29 — still elevated relative to the spring's sub-200k readings, but the surge in August payrolls suggests the claims uptick was transitory noise rather than a structural deterioration. The blowout report sealed the case for a September 16–17 hike: with the labor market reasserted as resilient and Core PCE stuck at 3.3%, the Fed's inflation mandate now fully dominates the employment mandate in the policy calculus.
In plain termsThe unemployment rate is 4.1% — and employers added 162,000 jobs in August, far more than the 53,000 expected. The July payroll loss (-23,000) that rattled markets last month was also revised away: the BLS now says July was actually a gain of +21,000. So there was no job-loss month after all — just a bad preliminary estimate that got corrected. If you're looking for work, the job market is meaningfully healthier than it appeared two weeks ago. For borrowers, the strong jobs report means the Fed now has all the cover it needs to raise rates at the September 16–17 meeting: a healthy labor market + sticky inflation = tightening. Plan for a 25-basis-point hike that would push credit card APRs and adjustable mortgage rates higher by October.
Economic Output
GDP Growth Rate (Q2 2026, Adv. Est.)
+1.5%
The BEA's advance estimate for Q2 2026 GDP came in at +1.5% annualized (released July 30) — a deceleration from Q1 2026's final +2.1% and below the 2.1% consensus. Consumer spending remained the primary growth driver while government outlays were a headwind. Two more revisions will update this figure before year-end. Crucially, the post-July data picture has materially improved from the recession-scare narrative of early August: the August jobs report (+162,000 payrolls, July revised from −23,000 to +21,000) signals that labor market deterioration was overstated, and ISM Manufacturing PMI held strong at 54.6% in August (eighth consecutive month of expansion). Retail sales slowed to +5.0% YoY in July — still positive — and will be updated for August on September 12. The Q3 2026 GDP advance estimate is expected in late October. With both the labor market and manufacturing sector showing resilience, the severe-recession scenario has receded; the more likely path is deceleration, not contraction.
In plain termsThe economy grew at +1.5% in Q2 2026 — positive, but below Q1's +2.1%. The week's key development: the August jobs report reversed the recession-scare narrative. July's -23,000 payroll reading (which had markets worried about a downturn) was revised to +21,000, and August itself added +162,000 jobs. Factories are also still expanding (ISM PMI 54.6% in August). A recession requires two consecutive quarters of negative growth — Q2 is still positive, and the Q3 data is now trending in a better direction. Q3 GDP won't be confirmed until late October, but the risk of a contraction is meaningfully lower today than it was last week.
Fixed Income
10-Year Treasury Yield
4.78%
The 10-year Treasury yield rose to 4.78% on September 4 — up 5 basis points from the 4.73% close on August 28 — as the August jobs report (+162,000, released September 5) confirmed what Chair Warsh's Jackson Hole speech telegraphed: the Fed's September hike case is intact. The post-jobs reaction produced a modest bear steepening: the 2-year note rose from 4.34% to 4.37% (+3 bps), the 10-year rose 5 bps, and the 2s10s spread widened from +39 bps to +41 bps. This steepening is a slight reversal of the bear flattening that followed Warsh's speech, consistent with markets pricing the September hike as settled but not expecting an extended tightening cycle. The full yield curve as of September 4: 1M=3.79%, 3M=3.91%, 6M=3.98%, 1Y=4.13%, 2Y=4.37%, 5Y=4.54%, 7Y=4.65%, 10Y=4.78%, 20Y=5.25%, 30Y=5.24%. The curve remains firmly upward-sloping (normal) across all maturities. The next major yield catalyst is the September 10 CPI: a re-acceleration could push the 10-year toward 4.90%.
In plain termsThe 10-year Treasury yield rose to 4.78% after the August jobs report (+162,000) confirmed the Fed will likely raise rates at its September 16–17 meeting. Higher government bond yields translate directly into higher mortgage rates: at 4.78%, 30-year fixed mortgages are running in the 7.3–7.6% range — and a $400,000 home loan costs roughly $2,740–$2,830 per month. The 2-year Treasury — which tracks near-term Fed moves most closely — rose to 4.37%. If the September 10 CPI comes in above 3.5%, yields could push higher still; a surprise miss toward 3.2% might offer brief relief. For existing homeowners with fixed rates, there's no immediate impact — but those planning to buy or refinance are watching these numbers closely.
Consumer Activity
Retail Sales Growth (YoY)
5.0%
July 2026 advance retail sales came in at +5.0% year-over-year — down sharply from June's 6.7% and the weakest annual reading since early 2026. On a monthly basis, sales fell 0.6% from June to July, the first meaningful monthly decline in six months. Lower gasoline station receipts contributed mechanically, but core measures also showed softness tied to what appeared at the time to be labor market deterioration. That context has now shifted materially: the August jobs report (+162,000 payrolls; July revised from −23,000 to +21,000) shows the labor market was never as weak as the July retail data implied. Rather than a consumer on the edge of retrenchment, July's retail softness may reflect a transitory gasoline-price adjustment. August retail sales (due September 12) will be the first read on whether consumer spending has recovered in tandem with the payrolls revision — a rebound toward 5.5%+ YoY would confirm the consumer remains the primary growth engine.
In plain termsAmericans spent 0.6% less in July than in June, and year-over-year retail growth slowed from 6.7% to 5.0%. At the time, this looked like the consumer pulling back after job losses. Now that the August jobs report has shown +162,000 hires (and July's -23,000 was revised to +21,000), the July retail weakness looks less alarming — possibly just a gas-price-driven blip. Still, 5.0% retail growth is solid and above the long-run average. The August retail sales report (September 12, three days before the FOMC blackout) will be the deciding read: if consumers kept spending in August, the "soft landing" narrative holds.
Money Supply
M2 Money Supply Growth (YoY)
5.4%
M2 grew 5.4% year-over-year through July 2026, per the Federal Reserve's H.6 release published August 25 — a slight moderation from June's 5.5%. Total M2 now stands at $23.2 trillion. The deceleration from the 5.6% peak in May continues, but the pace of easing remains gradual. The July consumer slowdown (retail sales -0.6% monthly, payrolls -23,000) appears to be translating modestly into slower money creation — but not fast enough to provide meaningful disinflation relief in the near term. Historically, M2 at 5.4% remains well above the 3–4% range associated with 2% inflation. With Core PCE holding at 3.3% in July and Chair Warsh's hawkish Jackson Hole signal, the M2 trajectory suggests the structural inflation floor remains intact through at least mid-2027.
In plain termsM2 measures all the money in circulation — cash, bank accounts, money market funds. At 5.4% annual growth (down from 5.5%), the money supply is still expanding faster than the economy produces real goods and services — which is part of why inflation remains above 3% even after coming down from its peak. This excess liquidity is structural: the money created in 2024–2025 is still working through the system with a 12–18 month lag. The slight slowdown from 5.5% to 5.4% is directionally positive but not materially significant — a durable return to 2% inflation likely requires M2 growth to slow toward 3–4%. Until then, upward inflation pressure persists.
Inflation
Core PCE Price Index (YoY)
3.3%
July 2026 Core PCE — the Fed's preferred inflation gauge — held at 3.3% year-over-year for the second consecutive month (BEA, Personal Income and Outlays, released August 26). Markets had expected a decline toward 3.1–3.2%, consistent with July Core CPI's improvement to 2.5%. Headline PCE rose to 3.7% YoY. The flat reading gave Chair Warsh the data backing for his hawkish Jackson Hole address. Following the August jobs report (+162,000 payrolls, released September 5), the Core PCE stall has moved from "possible impediment to a hike" to "active justification for one": with the labor market no longer a counterweight, two months of 3.3% Core PCE and rising headline inflation provide a clear mandate for tightening. Core PCE sits 1.3 percentage points above the Fed's 2% target. The August Core PCE (due approximately September 26) will be the first post-FOMC inflation read — it will either validate the September hike or begin the case for further action.
In plain termsCore PCE is the Fed's favorite inflation yardstick — it strips out food and energy to capture the underlying trend. At 3.3% for July (same as June), prices are still rising much faster than the Fed's 2% target, and no progress has been made in two months. Now that the August jobs report has removed the labor market as an argument against hiking, the Core PCE stall means the Fed has both its justifications: sticky inflation and a healthy jobs market. If you carry a variable-rate mortgage, credit card balance, or car loan, plan for higher costs in October: the 58% hike probability means a rate increase is now the most likely outcome at the September 16–17 meeting. The August Core PCE release (approximately September 26) will be the next major inflation checkpoint after the FOMC decision.
Economic Output
ISM Manufacturing PMI
54.6
August 2026 ISM Manufacturing PMI registered 54.6 — down 1.0 point from July's 55.6 four-year high but marking the eighth consecutive month of expansion (released September 2). New orders fell 3.0 points to 53.7; backlogs eased 3.2 points to 51.8; the employment sub-index slipped to 51.2 from 52.8, though hiring remained expansionary. Production held strong at 58.3, and 14 of 18 industries reported growth. The slight pullback from July's peak was in line with expectations: the consumer spending slowdown and higher borrowing costs were expected to moderate demand at the factory level without ending the expansion. ISM noted that the August reading corresponds historically to an annualized GDP growth rate of approximately 2.4%. The moderation to 54.6 is neither alarming nor decisive — but combined with the strong +162,000 August jobs report released three days later, it confirms the economy is decelerating rather than contracting. The September ISM Manufacturing PMI (due October 1) will provide the first post-FOMC read on whether a potential rate hike weighs on factory demand.
In plain termsAny ISM reading above 50 means manufacturing is growing; below 50 means shrinking. At 54.6, U.S. factories are still in solid expansion — the eighth consecutive month above 50 — though growth is slightly cooler than July's four-year high of 55.6. Manufacturers are still hiring (employment sub-index 51.2), new orders are still growing (53.7), and production is running at a strong pace (58.3). This is good news: the manufacturing sector is not breaking, even as the broader economy shows signs of deceleration. For the Fed, a still-healthy 54.6 reading leaves no reason to reverse course — factories are not the ones demanding relief from high rates. Coupled with the strong August jobs report (+162,000), the U.S. economy is showing more resilience than the July data had suggested.
Labor Market
Initial Jobless Claims (4-wk avg)
207k
The 4-week moving average of initial jobless claims rose to 207,250 for the week ending August 29, 2026 — released September 4 — up from 205,750 the prior week. The weekly print for August 29 was 206,000, up from 203,000. The claims trend has drifted higher through August, sustaining four consecutive weeks above 200,000. However, the August 5 employment report (+162,000 payrolls, released September 5) significantly recontextualized the claims signal: the concurrent surge in nonfarm payrolls suggests the uptick in weekly filings reflects normal labor market churn rather than an accelerating layoff wave. The 207k 4-week average sits modestly above the 200,000 threshold, but the payroll data confirm that new hiring is running far ahead of any deterioration in separations. With the September hike probability now at 58%, the claims data has largely been neutralized as the primary policy counterweight — the August payroll surprise shifted the balance decisively in favor of tightening. The next weekly claims release (week ending September 5, due September 11) will confirm whether the upward drift continued through Labor Day week.
In plain termsFor the week ending August 29, 206,000 people filed for unemployment benefits for the first time — and the 4-week average rose to 207,000 from 206,000. This is still a mild upward trend, but it now needs to be read alongside the August jobs report (+162,000 hires): the labor market is simultaneously firing slightly more workers AND hiring at a robust pace. Four weeks above 200,000 is a caution signal, not a red alert. For rate-cut hopes: the rising claims trend had been the one data point that might give the Fed pause. But with payrolls surging +162,000 in August, the Fed can reasonably look past the claims drift and proceed with the September 16 hike. For workers, job security remains historically strong — the claims numbers, while trending higher, are still well below levels seen during any past recession.
Source: U.S. Bureau of Labor Statistics, Consumer Price Index — July 2026 (released August 12, 2026)
The Hike Is On: August Payrolls Surge +162K, Revisions Erase July's Job-Loss Scare, September FOMC Odds Move to 58%
August NFP +162,000 vs. 53,000 expected; July revised from −23,000 to +21,000; FOMC odds 42% hold / 58% hike; ISM PMI 54.6% (8th expansion month) — By Connor Leary, September 6, 2026
The August 2026 employment situation report, released September 5, delivered what may be the most significant data revision of the year. Nonfarm payrolls surged +162,000 in August — nearly three times the 53,000 consensus — while the BLS simultaneously revised July from −23,000 to +21,000 and June up an additional 11,000. In a single report, the "first job loss in years" narrative that had dominated six weeks of market commentary was erased. July was never a contraction month; it was a preliminary estimate that undershot reality by 44,000 jobs. For a labor market that had spent the summer under the microscope, the revision is as consequential as the August headline itself.
The market reaction was immediate and unambiguous. CME FedWatch moved from approximately 50% hold / 50% hike — where odds had settled after Jackson Hole's initial repricing — to 42% hold / 58% hike within hours of the report. The 10-year Treasury yield rose 5 basis points to 4.78%; the 2-year ticked up 3 basis points to 4.37%. The modest bear steepening of the curve — reversing part of the post-Jackson Hole bear flattening — is consistent with the market pricing one hike as nearly resolved while remaining skeptical of a sustained tightening cycle. The 2s10s spread widened slightly from +39 bps to +41 bps, and the 3m10y spread sits at +87 bps. A normal, upward-sloping curve remains intact across all maturities.
"July was never a job-loss month — it just looked like one. The revision changes everything: the Fed now has a healthy labor market and sticky inflation simultaneously."
The ISM Manufacturing PMI, released September 2 (three days ahead of payrolls), added confirmation that the industrial economy remains on solid footing. August PMI came in at 54.6 — down 1.0 point from July's four-year high of 55.6, but the eighth consecutive month of expansion. New orders moderated to 53.7 and the employment sub-index eased to 51.2, but production held strong at 58.3. ISM's historical translation puts August's 54.6 reading at approximately 2.4% annualized GDP growth — well above recession territory. The PMI moderation is not alarming; it is the kind of deceleration that follows an overheated reading and suggests the manufacturing expansion is normalizing rather than ending.
Together, the August jobs report and ISM PMI have fundamentally reframed the September 16–17 FOMC calculus. A month ago, the Fed was facing an uncomfortable tension: Chair Warsh wanted to hike based on sticky inflation, but a contracting labor market complicated the case. That tension is gone. The Federal Reserve now confronts the cleanest version of its mandate in months: a healthy labor market (+162,000 payrolls, 4.1% unemployment) coexisting with core inflation persistently above target (Core PCE 3.3% for two consecutive months). Under these conditions, the case for holding is difficult to sustain on economic grounds — a hike is the straightforward response to the data.
The one remaining swing vote is the September 10 August CPI report. Core PCE and Core CPI have diverged for two months — Core CPI improved from 2.6% to 2.5% in July while Core PCE held flat at 3.3%, a gap explained by PCE's higher weighting of healthcare and financial services. If August Core CPI continues its improvement to 2.4% or below, hold advocates will point to it as evidence that the disinflationary trend is intact and a hike is premature. But with the labor market now reasserted as resilient, the burden has shifted: the CPI would need to be significantly below expectations — a genuine downside surprise — to change the September outcome. A reading anywhere near 3.3% or above makes the hike near-certain.
For borrowers, the September 16 decision carries immediate consequences. A 25-basis-point hike to 3.75–4.00% — the highest federal funds target since 2024 — will flow through to variable-rate credit within one billing cycle: credit card APRs (already above 22%) move higher; adjustable-rate mortgage holders face higher resets; new car loans climb above 7.8%. For fixed-rate mortgage shoppers, the 10-year at 4.78% already puts 30-year rates in the 7.3–7.6% range — a post-hike move toward 4.90% could push 30-year mortgages above 7.6%, adding roughly $80–100 per month to a $400,000 loan. The September 10 CPI report is the last data point before the decision. If you are considering locking a fixed rate, the window is narrowing.