Heather Long

The past week was one of the most joyous – and scary – of my life. (a 🧵) I gave birth to my daughter and my heart grew several sizes. Then the “silent killer” after childbirth hit me and I nearly died.

Good chart. If you look at core inflation (which strips out gas and food prices), there are some worrying trends: 1) Big rise in goods prices. This is largely driven by Trump's tariffs (big move up since 2025) and now war. 2) Service sector inflation is picking up again. Basically no improvement for a year on services. 3) Rent prices are no longer improving. Housing inflation moving sideways. Bottom line: America's inflation problem is bigger than the war in Iran. (h/t to @NickTimiraos for the chart. I added the annotations)

I read this a little differently... Fed Chair Warsh sounded hawkish on a December hike. He made various comments implying the job isn't done and financial conditions aren't that tight. But...he sounded more dovish about 2027. He went out of his way to point to signs of some progress on inflation and market / consumer inflation expectations. Of course, as Greg points out, Warsh doesn't give straightforward answers. But he's doing more hints.

Wow. Business investment surged almost 13% in Q3 2026 due to the AI investment boom. We haven't seen anything that strong since Q3 2011 when the economy was finally starting to pickup a bit of momentum after the Great Recession. This will not be sustainable at this pace. [Note: I'm looking at "non-residential fixed investment" and I'm excluding the 2020 pandemic re-opening]

Yes, consumer spending has been robust. You could even call it strong. But many people are spending more $$ than they bring in each month. The savings rate is falling. Credit card debt is at a record high. Personal bankruptcies are up. Personal loans are way up. There's clearly strain on a lot of Americans. Personal income in September: +0.2% Personal spending in September: +0.5% Inflation-adjusted spending in Sept: FLAT (0%)

JUST IN: The US still has an inflation problem and it's getting worse again. PCE Inflation rose to 3.6% in September. That's the highest since May. Core PCE Inflation (excludes food and energy) ticked up to 3.1%. That's also the highest since May. Bottom line: Inflation is back near a 3-year high. It's largely due to war in Iran, but there's legitimate concern that inflation is spreading beyond energy.

All this AI investment contributed more to the US economy in Q3 than consumption. (See chart) Consumption was still strong. But business investment is turbocharging the U.S. economy. The big question is how long can this last?

JUST IN: The U.S. economy is growing rapidly. GDP Growth in the 3rd quarter came in at a hot 3.4%. That was even better than expected. What's driving this? 1) The big AI investment. There was another huge surge in business investment (+12.7%!) 2) Consumer spending also robust. +3.8% in Q3. That's the same as Q2 and the strongest since the end of 2024. Not everyone is feeling the benefits of this growth uptick. But anything related to AI is soaring.

A December rate hike seems very likely. Summary of Fed Chair Kevin Warsh: 1) It was a 'hawkish skip' today. He kept saying the job isn't done on inflation. 2) He called the US economy 'strong' 3) He does not think economy is overheating 4) He reiterated that he thinks it's possible to tighten financial conditions (aka hike rates!) without triggering layoffs 5) It's unclear what Warsh wants for 2027, but he sounded inclined to try not to do many more hikes 6) He's bringing 'new medicine' to Fed. That means more focus on AI and big picture trends. (More to come on that when his 5 task forces finish up, but he announced only 7 rate-setting meetings in 2027 and 6 in 2028.)

Fed Chair Kevin Warsh is delivering a "hawkish skip." A December rate hike seems highly likely. "We haven't achieved price stability, but we're working on it." "While overall financial conditions are tighter, I’m unwilling and unable to call them TIGHT." Warsh also announced a big change: 2027 will have 7 interest rate setting meetings and 1 big picture deliberation meeting. 2028 will have 6 interest rate setting meetings and 2 big picture deliberation meetings.

3 interesting things in the statement: 1) 2 dissents. Cleveland Fed President Beth Hammack was expected. But Fed Governor Lisa Cook was not. She is viewed as a "dovish." This may be Fed signaling that a December hike is basically locked in. 2) New line in the statement: "The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2% goal." 3) Economy described as "strong" (they said "solid" in September)

JUST IN: The Federal Reserve kept interest rates steady (as expected). Current benchmark rate: 3.75% to 4% It was a 10 to 2 vote. Two dissents – Beth Hammack and Lisa Cook (a surprise) -- who wanted to hike today. The Fed is widely expected to hike rates again in December. Market pricing in 1 or 2 hikes next year. **Note the new line in the statement = "The accumulation of more info will help the [Fed] determine the policy stance" #Fed #economy

Gas prices will remain above $4 a gallon (nat'l average) through the election. That's a significant shift from recent past. Even 2022 was about fifty cents lower November 2026: Likely to be ~$4.30 to $4.40 November 2024: $3.07 November 2022: $3.80 November 2020: $2.11 November 2018: $2.75 November 2016: $2.23 Brent oil prices just spiked to nearly their highest level since the war in Iran began ($116, about $2 off the spring highs). WTI oil price for the US just topped $103, which is about $10 off the spring highs. Bottom line: Oil/gas prices aren't going down until there's a resolution to the war.

Another day, another hot inflation report. Business inflation surged in September to 6.3% (!). The expectation was 5.4%. Every category of business inflation was hot, even after stripping away energy costs. It's inevitable that companies will pass some of these costs along to consumers. It's yet another reason this fight against inflation is likely to be longer than anyone wants. Business (wholesale) inflation: 6.3% Consumer Inflation: 3.7%

Just In: There will be a 3.6% cost of living adjustment for Social Security payments in 2027. That's the highest since 2023. It will help offset some of the financial pain right now on retirees. The increase is notably higher than the average 3% wage gain many workers are getting.

Inflation has nearly wiped out all wage gains since January 2025. That's how big of gamechanger the war in Iran has been on Americans' finances. Since January 2025: CPI Inflation has grown +5.4% Wages (average hourly earnings) +5.5% This is a very different picture from President Trump's first term when wages were up over 15%, well above about 8% inflation. It helps explain the frustration many households feel right now with the economy.

Here's the key problem...inflation has wiped out wage gains for 6 months now. It's a financial squeeze. Americans are trying to work more hours to make up for it, but many are still falling behind. Many people are worse off. As BLS wrote, In the past year, "real average hourly earnings decreased 0.7%. The change in real average hourly earnings combined with a 0.6% increase in the average workweek resulted in a 0.1% decrease in real average weekly earnings."