Hot Economy. Stubborn Inflation. Please Send Snow.
For the week ended 10/31/26.
The Federal Reserve held interest rates steady last week, but don’t mistake sitting still for getting comfortable. By a 10–2 vote, officials kept their benchmark rate between 3.75% and 4%, with Lisa Cook and Beth Hammack preferring another quarter-point increase. Apparently, two people were ready to turn down the thermostat while everyone else waited to see the utility bill. The statement kept inflation firmly in the crosshairs and left another hike on the table.
And the economy isn’t exactly helping the Fed cool things down. Third-quarter GDP grew at a 3.4% annualized pace, up from 2.2% in the second quarter. Business investment and consumer spending helped power the expansion. Whatever Americans tell the sentiment surveys, their wallets apparently haven’t received the recession memo.
The AI construction boom remains a major part of this story. Data centers, chips and the infrastructure supporting them are generating real economic activity, even while investors debate what all that spending will eventually earn. Building the future is expensive. Figuring out who gets paid for it could prove even more interesting.
Meanwhile, September’s inflation report offered little reason to declare victory. The Fed’s preferred PCE measure rose 0.5% for the month and 3.6% over the past year; excluding food and energy, prices increased 3.1% annually. Consumer spending rose 0.5%, outpacing income growth of 0.2%. Keeping the economy humming is easier when households keep spending, but getting inflation back to 2% becomes a tougher assignment.
That leaves December very much in play for another rate increase. Strong growth is welcome. Strong growth accompanied by stubborn inflation gives the Fed fewer reasons to relax – and borrowers fewer reasons to expect relief.
For the week, equity real estate won the performance derby, gaining 1.1%, followed by domestic bonds at 0.6%. U.S. stocks slipped 0.6%, while commodities lost another 1.7%.
Elsewhere, Binance reported approximately $6.3 billion stolen in a security breach and said it would cover the losses using company resources. The investigation continues. Crypto investors already face enough excitement from price swings; wondering whether the assets will still be there in the morning seems like an unnecessary bonus feature. My enthusiasm remains comfortably below zero.
Looking ahead, payrolls and unemployment take center stage. Investors will be watching for whether hiring supports this growth story without adding more inflation pressure.
Good morning, and pray for snow. At least around here things should be cooling off.
Interesting data point of the week.
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