Mind the Macro

This week, we discuss recent housing market releases and the Federal Open Market Committee's latest decision under its new chair, Kevin Warsh. Housing starts fell to their lowest level since April 2020, at the onset of the Covid 19 pandemic. Much of the decline was driven by multifamily construction, a notoriously volatile component of the data. Even so, the report is consistent with broader evidence that the housing market continues to lose momentum. Mr. Warsh also held his first press conference as Federal Reserve chair. Among the more visible changes were a shorter policy statement, the decision to withhold his own projection from the Summary of Economic Projections, and a refusal to provide forward guidance. Beneath these procedural changes lies a potentially more significant shift in leadership style. Mr. Warsh has emphasized that policy decisions will emerge from what he describes as a "good family fight" while reaffirming the central bank's commitment to achieving its inflation target. Although a less transparent approach may ultimately lead to better policy outcomes, the immediate effect is to introduce an additional layer of uncertainty into an economy that already faces no shortage of it.

This week, we discuss rising inflation, the upcoming Federal Open Market Committee meeting, and the much anticipated SpaceX initial public offering. Consumer prices continued to accelerate in May, with headline CPI rising 4.2% from a year earlier and core CPI increasing 2.9%. Alternative measures of inflation, including median, trimmed mean, and sticky CPI, also pointed to broadening price pressures. Producer prices rose at their fastest pace since 2022, prompting economists to revise their forecasts for the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures index, higher. The renewed inflationary pressure complicates the outlook for monetary policy. With inflation moving further from the Federal Reserve's target, policymakers may find it increasingly difficult to justify lower interest rates and could instead be forced to maintain or even tighten policy. We examine the forces shaping the inflation outlook and discuss what investors should expect from the next FOMC meeting under the leadership of Kevin Warsh. We also turn to the SpaceX initial public offering and the broader state of financial markets. Investor enthusiasm for high growth companies remains intense, even as SpaceX, Anthropic, and OpenAI continue to generate substantial losses. The willingness of investors to assign extraordinary valuations to unprofitable businesses evokes uncomfortable comparisons with the technology boom of the late 1990s.

In this episode, we discuss the latest labor market releases, deteriorating consumer balance sheets, and Friday's decline in equity markets. While payroll growth exceeded expectations and the unemployment rate held steady at 4.3%, the composition of employment gains, the timing of the Memorial Day holiday, and several other details within the report continue to suggest a less encouraging picture of the economy. Meanwhile, consumer debt continued to rise, with revolving credit balances, much of which consists of credit card borrowing, increasing at an annualized rate of 10% in April after rising 9% in March. These figures are particularly troubling given that the personal savings rate remains near historic lows and credit card delinquencies have climbed to levels not seen since the Global Financial Crisis. Consumers appear increasingly reliant on borrowing to sustain spending, a dynamic that has rarely ended well. Friday's sell off in equity markets served as a reminder of the fragility underlying the recent rally. Weaker than expected revenue guidance from Broadcom, renewed concerns about inflation, and rising expectations that the Federal Reserve may be forced to raise interest rates before year end all contributed to the decline.

This week, we discuss downward revisions to GDP, persistent inflation and a renewed decline in the savings rate. Real GDP growth in the first quarter of 2026 was revised down from 2.1% to 1.6%, well below the consensus estimate of 2.2%. Meanwhile, inflation remained uncomfortably high. The PCE price index rose 3.8% from a year earlier, while core PCE increased 3.3%, both still far above the Federal Reserve’s 2% target. The same report offered little comfort on the consumer. Real disposable personal income fell 0.5%, consumption rose just 0.1%, and the savings rate dropped to its lowest level since the eve of the Global Financial Crisis.

This week, we discuss a series of perplexing market moves as inflation readings, oil prices, and Treasury yields all moved higher at once. Both headline CPI and PPI surprised to the upside, placing the Federal Reserve and its new Chair, Kevin Warsh, in an increasingly difficult position. According to the latest inflation nowcast from the Federal Reserve Bank of Cleveland, inflation is expected to come in at more than double the Fed’s two percent target. Meanwhile, yields on ten and thirty year Treasuries climbed sharply as investors demanded greater compensation for rising inflation risks and mounting concerns over America’s fiscal trajectory. The yield on the thirty year Treasury bond has now reached its highest level in nineteen years. Oil prices have also continued their ascent. Equity investors, however, appear largely unconcerned, choosing instead to focus on strong earnings reports from the hyperscalers. The divergence between buoyant equity markets and increasingly anxious bond markets suggests that investors are drawing very different conclusions about the economic outlook.

This week, we discuss the Employment Report, the Job Openings and Labor Turnover Survey, and the Berkshire Hathaway Annual Meeting. Although the headline employment figures appeared strong, the underlying composition was less reassuring. Nearly all of the payroll growth came from lower wage sectors and industries where workers are more likely to hold multiple jobs. In that sense, the rise in payrolls may be less a sign of strength than of strain, as more consumers take on additional work to make ends meet. That interpretation was reinforced by a 449,000 increase in the number of people working part time for economic reasons. The JOLTS survey told a similarly subdued story, with low quits suggesting continued uncertainty and caution among workers. Finally, Greg Abel’s message from the Berkshire Hathaway meeting echoed our own: be patient. Warren Buffett noted that there had been only five truly “juicy” periods in his career. Until such opportunities return, Berkshire will continue selling equities and holding cash in Treasuries. Without those rare windows, Buffett’s extraordinary record of outperforming the market by roughly two times over six decades would likely not have been possible.

This week, we discuss the preliminary release of first quarter 2026 GDP, the PCE inflation report, the FOMC meeting and recent earnings releases, among other developments. Although headline GDP grew by 2%, the details were far less reassuring. Growth was concentrated in healthcare, technology and government spending. Without those three pillars, GDP would have been negative. The FOMC meeting was historic: the statement drew the most dissents since 1992. Three dissenters objected to language that pointed to “additional” easing, arguing that rising inflationary pressures made such guidance imprudent. Finally, after a reasonably strong week of earnings reports, we discuss the narrow breadth of the equity market and the degree to which AI related companies remain the primary engine of the rally.

This week, we discuss recent macroeconomic releases, including retail sales, pending home sales and the flash composite PMI, as well as Kevin Warsh’s Senate confirmation hearings and the war in Iran. At first glance, some of the data appeared to point to stronger growth. Under the hood, however, the figures continued to tilt toward stagflation. For instance, headline retail sales rose 1.7 percent, but the figure is not adjusted for inflation and is likely to look far less robust in real terms. Although we had expected Kevin Warsh to favor lower interest rates and look through recent inflation pressures, our view is that the FOMC is likely to resist that approach and keep rates unchanged, particularly after its policy mistakes in 2021, when the committee wrongly dismissed a surge in inflation as transitory. Finally, we discuss equity market froth and the war in Iran.

This week’s data offered a mixed but telling picture of the American economy, spanning the Beige Book, fresh readings on inflation and housing, and a further climb in equity markets. Housing, often a bellwether of cyclical momentum, continued to soften. Existing home sales fell short of expectations, while the Housing Market Index also declined, underscoring waning confidence among builders. Inflation, as measured by the Producer Price Index, surprised to the downside on the headline figure, though recent month over month gains suggest underlying pressures remain uncomfortably firm. The Beige Book, drawing on regional Federal Reserve surveys, described an economy marked by subdued growth, rising inflation expectations, and elevated uncertainty linked in part to the war in Iran. Against this backdrop, equity markets have staged a relief rally, pushing major indices to fresh highs. Yet the character of the advance is notable. Unlike earlier phases of recovery, leadership has not come from cyclically sensitive or higher risk assets, but from companies perceived as higher quality and more resilient, often benefiting from structural tail winds. The shift points to a market that is advancing, but with caution, as investors seek shelter even while bidding prices higher, betraying a lingering unease about the durability of the expansion and the path ahead.

This week’s data offered a familiar tension: reassuring headlines paired with more concerning underlying dynamics. The latest employment report appeared strong at first glance. Payrolls exceeded expectations and the unemployment rate declined. Yet the details tell a different story. Research from the Federal Reserve Bank of San Francisco suggests that unusually warm weather materially distorted the data, implying that payrolls may in fact have fallen by roughly 79,000 rather than rising by 178,000. If accurate, that would mark the largest weather-related divergence in the series since 2015. The unemployment rate, too, deserves skepticism. Both employment and labor force participation declined. The drop in the unemployment rate was therefore less a sign of labor market strength than a reflection of arithmetic: the labor force shrank faster than unemployment itself. It is a softer dynamic than the headline suggests, and one that aligns with your broader theme of a labor market losing underlying momentum. The inflation side of the ledger was equally uncomfortable. The latest Personal Consumption Expenditures report from the Bureau of Economic Analysis showed real disposable personal income slipping by 0.1 percent, even as both headline and core PCE rose by 0.4 percent month over month. In other words, purchasing power is being squeezed at the same time that inflation remains firm. That combination is rarely benign. Layered on top of this is the geopolitical backdrop. The conflict in Iran continues to inject uncertainty into energy markets and, by extension, inflation expectations. Oil’s volatility is not just a market story; it feeds directly into the policy dilemma facing the Federal Reserve, which must weigh persistent inflation pressures against signs of a softening economy. Taken together, the picture is not one of resilience but of fragility. Strong headlines are masking weaker foundations, while inflation remains uncomfortably elevated. It is precisely the kind of environment in which markets begin to question the narrative rather than accept it.