According to macro analyst, liquidity expert and research provider Michael Howell in this week's Macrovoices podcast, the odds of the fed hiking interest rates relatively soon are exceedingly high... As you'll see in the following, I don't entirely sympathize.
He cites the predictive ability of 2-year treasury yields:
"It's correct 85% of the time."
And on that I concur, as this is an indicator we have tracked very closely for years.
Here's our chart (orange line = 2yr yield, white line = fed funds rate)... Note how the current setup -- historically-speaking -- virtually assures a coming fed hike:
"...the current Fed (the chair in particular) has a new unspoken mandate... The Fed has to accommodate treasury borrowing, which means they'll be mightily resisting this historical relationship... I.e., if they lift rates because growth/inflation is lifting the long-end (which is the tradition, and is what everyone seems to think will ultimately happen), the treasury has to issue new, and refi old, debt into a higher short-term interest rate setup -- which is very bad given the size of the debt load we're talking about..."
And yet,
"If you listen to Michael Howell in this week's macrovoices you'll see he believes the traditional relationship is very much alive.. he fully expects rate hikes...
And while Howell may be correct, if it's up to Warsh, it'll be done very gently and I suspect only to maintain credibility... He's desperately trying to change the narrative, and even the metrics (trimmed mean inflation vs core PCE, which shows much tamer current inflation)... if it's up to him, he'll fiddle with the balance sheet first.. Hence why I think odds do not favor rate hikes in the foreseeable future."
Stay tuned...
For more on current conditions and how we view them, below --following the summary of our latest PWA Index scoring -- is this week's macro rundown:
The Inflation News Was Good. The Consumer News Was Not*.
Week of August 10, 2026
Last week we wrote about an economy running at two speeds — an industrial and investment cycle moving fast while the household side stalled. This week the same split showed up again, but the news arrived in the opposite order.
The inflation reports were the best of the year. And the reports on the American consumer were the worst in more than a year. Both landed inside the same five days.
The inflation reports
Consumer prices rose 0.1% in July, bringing the annual rate down to 3.4% from 3.5%. Excluding food and energy — the "core" measure that strips out the most volatile categories — prices rose 0.2%, and the annual core rate fell to 2.5%, its lowest of this cycle and within half a percentage point of the Federal Reserve's target.
Wholesale prices were even better. The producer price index was unchanged for the month against expectations for an increase, and its annual rate dropped sharply to 4.7% from 5.5%.
Markets responded exactly as you would expect. Expectations for a Federal Reserve rate increase at the September meeting fell from roughly 55% a week earlier to around 30%, and short-term interest rates declined. The S&P 500 and the Russell 2000 index of smaller companies both reached record highs during the week.
The consumer reports
Retail sales fell 0.6% in July — the largest monthly decline in over a year, against expectations for a small increase. The narrower measure economists watch most closely, which strips out autos, gas and building materials, turned negative for the first time since September 2025. Adjusted for inflation, sales fell 0.7%.
Consumer sentiment dropped about 8% in the preliminary August reading, ending two consecutive months of improvement and coming in well below forecasts. The decline was broad, and it was steepest among older households, lower-income households, and those without a college degree — the groups most exposed when prices outrun paychecks.
Which brings us to the piece that ties the two halves of the week together. July's inflation rate of 3.4% came in above wage growth of 3.2%. Adjusted for inflation, average hourly earnings were 0.2% lower than a year ago. That is now the fourth consecutive month in which price increases have outpaced pay increases.
This is the honest reconciliation of a confusing week. Inflation is improving. It is not yet improving faster than it is eroding household purchasing power. Those are different questions, and the answer to the second one is what shows up in retail sales and sentiment.
Where our internal conditions gauge stands
Our internal conditions gauge declined this week, from its highest level in four years to its third-highest.
We want to be careful in both directions here, because the number is easy to misread.
The decline is real, and it came almost entirely from the consumer category, which fell to just four positive readings out of twenty-four. That is the deterioration described above, showing up in the data we track.
But the gauge remains at a level it has reached in only three of the past two hundred fifteen weeks, and all three of those are the last three. Its typical reading over the past four years has been substantially negative; this week's reading sits well above that. The business category actually improved, with small-business optimism rising above its long-term average for the first time in five months and manufacturing indicators holding at multi-year highs.
We would also note a mechanical point about our own tool. The gauge tracks sixty-seven separate readings, and it moves in fixed increments as individual readings change category. This week's decline represents a net change in three of those sixty-seven. That is a meaningful shift in composition, not a change in regime, and we would caution against reading any single week's move as a turning point — including this one.
One thing that is not resolving
Energy remains the unfinished business of 2026. Oil prices rose more than 5% on the week as negotiations to reopen Middle East shipping lanes remained deadlocked and shipping through the region came under renewed attack. Independent tracking of actual vessel traffic continues to show volumes far below pre-conflict levels, despite periodic optimism in the headlines. The U.S. Energy Information Administration extended its assumption of continued disruption by a full year, now expecting effects to persist into 2027.
We have consistently weighted observed shipping volumes more heavily than diplomatic announcements, and that approach has served us well twice in the past three weeks — first when prices fell sharply on a deal that did not materialize, and again this week when they recovered.
A note on interest rates
One development deserves attention because it runs against intuition. In the same week that expectations for Fed rate increases fell sharply, long-term interest rates rose. The thirty-year Treasury yield reached a new high for this cycle.
This is not a contradiction. Short-term rates follow the Federal Reserve. Long-term rates respond to the supply of government borrowing and to private demand for capital, and both were on display this week. The Treasury reported a record July budget deficit, with interest costs on the national debt running 15% above last year. Meanwhile, corporate borrowing to fund artificial intelligence infrastructure continues at scale.
The practical implication for households is direct: mortgage rates are set off long-term yields, not the Fed's policy rate. A Fed that stops raising rates does not automatically mean cheaper mortgages.
How we are positioned
Our positioning is largely unchanged, and the week reinforced several of the views behind it.
We continue to hold meaningful exposure to industrial, infrastructure, and technology-capital-investment areas, where this week's business data was again the strongest part of the report card. Our real asset and commodity exposure benefited from genuinely tight physical conditions in industrial metals and from firmer energy prices. And our international and non-U.S. exposure got support from European growth data that came in stronger than expected while U.S. growth decelerated — the kind of convergence that has underpinned our long-standing view on the dollar.
We have deliberately structured the portfolio to hold positions that do not move together, and this week is a reasonable illustration of why. The same five days that were difficult for consumer-facing areas were strong for energy and for industrial metals.
We are watching the consumer data closely. One month is one month, and the August retail sales and sentiment figures will tell us whether July was a stumble or the start of something. The Federal Reserve's annual Jackson Hole symposium at the end of this month is the other event on our calendar that matters.
This commentary is provided for informational and educational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation regarding any security, sector, or investment strategy. The views expressed reflect the opinions of Private Wealth Advisors as of the date written and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not indicative of future results, and all investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as personalized investment, tax, or legal advice.
*The section titled "The Inflation News Was Good" was drafted with the assistance of artificial intelligence tools under the direction and editorial review of Marty Mazorra, Chief Investment Officer of Private Wealth Advisors. All analysis, conclusions, and final content are his own.
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