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- The Federal Reserve (Fed) kept its benchmark rate unchanged for a fifth straight meeting in July, though three policymakers voted to raise rates, leaving the door open to a hike in September.
- The Conference Board’s Leading Economic Index rose in July, with its six-month trend turning positive for the first time in more than four years, signaling a limited near-term recession risk.
- Initial unemployment claims fell to 206,000 last week, coming in below expectations and ending a month-long stretch of elevated readings.4
1. Fed Holds Rates Steady Despite Above-Target Inflation
The Fed held its benchmark federal funds rate at 3.50% to 3.75% at its July meeting, weighing solid economic growth and persistent inflation against ongoing uncertainty. This marks five consecutive meetings without a rate change.¹ Heading into the decision, futures markets implied a roughly one-in-three probability of a rate increase.²
The vote was not unanimous. Three members of the Federal Open Market Committee dissented, preferring to raise the policy rate by 25 basis points.¹ That level of dissent signals that a rate hike at the September meeting remains possible.
Policymakers described the economy as expanding at a solid pace. Job growth has broadly kept pace with workforce expansion, and the unemployment rate has generally held steady.¹ Productivity growth and business investment were both cited as areas of relative strength.
Inflation remains above the Fed’s 2% target, with the persistence attributed in part to supply-related price increases, particularly in energy.¹ The Fed reaffirmed its commitment to restoring price stability.
2. Leading Economic Index Climbs as Key Indicators Improve
The Conference Board’s Leading Economic Index (LEI) rose 0.2% in July, supported by strength in the labor market, housing permits, and the interest rate environment. This move brings the index to 99.5, surpassing the consensus forecast of a 0.1% gain.³ This forward-looking composite is designed to anticipate turning points in the business cycle before they appear in broader economic data.
Three components contributed most to the increase: a decline in unemployment insurance claims, a rise in residential building permits, and a steeper yield curve, all of which tend to reflect conditions several months ahead of where the broader economy is heading.³
The LEI’s six-month trend turned positive in July for the first time in more than four years.³ Sustained declines in the index have historically preceded recessions, making the reversal a notable development.
Taken together, the latest data suggest the economy continues to operate from a position of strength, with stable labor conditions and firming housing activity offsetting softer consumer sentiment and weaker manufacturing orders.³
3. Jobless Claims Pull Back After Recent Run-Up
The number of Americans filing new unemployment claims fell to 206,000 for the week ending August 15th, down 6,000 from the upwardly revised prior week total of 212,000.⁴ The reading came in below economists’ consensus estimate of 210,000.5
Continuing claims, which track the total number of workers actively receiving unemployment benefits, edged up to just under 1.8 million for the week ending August 8th, an increase of 18,000 from the prior week’s upwardly revised figure of 1.78 million.⁴ Continuing claims data trail the initial claims figure by one week.
Claims have fluctuated throughout the summer, reflecting a labor market shaped by slow but steady hiring and a limited number of large-scale layoffs. The overall picture remains consistent with a broadly stable jobs environment that does not appear to be generating meaningful inflationary pressure.⁴
Looking Ahead
- Core PCE Price Index – Wednesday, August 26th
- Jackson Hole Symposium – Thursday, August 27th through Saturday, August 29th
- Nonfarm Payrolls Annual Benchmark Revision – Friday, August 28st
Why It Matters
The Federal Reserve’s annual Jackson Hole Symposium runs Thursday through Saturday and will be the most closely watched event of the week. With three FOMC members having dissented in favor of a rate increase at July’s meeting, investors will be listening closely for any signals on the Fed’s appetite for tightening at its September gathering. Commentary from Fed officials on the inflation outlook or the conditions for additional action will carry particular weight. Wednesday also brings the release of the Personal Consumption Expenditures (PCE) price index for July, the Fed’s preferred measure of inflation. The core reading, which excludes food and energy, will be especially significant given that inflation remains above the Fed’s 2% target and the September meeting is now in focus. A reading above expectations could strengthen the case for a rate increase. Friday brings the Bureau of Labor Statistics’ preliminary annual benchmark revision to nonfarm payrolls, which recalibrates prior job estimates using more complete state employment records and could materially reshape the recent labor market picture. Together, these three events will help set the tone for market expectations heading into the fall.
For the period ending 8/21/26.
*Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 Federal Reserve Board of Governors, Federal Open Market Committee Statement, July 2026
2 CME Group, CME FedWatch Tool, August 2026
3 The Conference Board, U.S. Leading Economic Index (LEI), July 2026
4 U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, August 20, 20266
5 Bloomberg
Disclosures
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The Personal Consumption Expenditures (PCE) Price Index measures the change over time in prices paid by U.S. consumers for goods and services. Published monthly by the Bureau of Economic Analysis (BEA), it is the Federal Reserve’s preferred measure of inflation and is used to assess progress toward the Fed’s 2% inflation target. The PCE Price Index differs from the Consumer Price Index (CPI) in its scope, weighting methodology, and treatment of certain healthcare expenditures; it generally registers a slightly lower inflation rate than CPI.
The Core Personal Consumption Expenditures (PCE) Price Index measures inflation in consumer spending after excluding food and energy prices, which tend to be more volatile. Published monthly by the Bureau of Economic Analysis (BEA) alongside the headline PCE, Core PCE is closely monitored by the Federal Reserve as a signal of underlying, persistent inflation trends. Because it strips out short-term price fluctuations in commodities and fuel, it is considered a more stable indicator of the direction of inflation over time.
The PCE Price Index family includes both the headline Personal Consumption Expenditures Price Index and the Core PCE Price Index, published monthly by the Bureau of Economic Analysis (BEA). The headline index captures price changes across all goods and services consumed by U.S. households; the core variant excludes food and energy to isolate underlying inflation trends. Together, these measures serve as the Federal Reserve’s primary inflation benchmarks in evaluating monetary policy, including decisions regarding the federal funds rate target.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX).
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