Economic Signals Remain Mixed as Inflation Pressures Persist and Policy Uncertainty Builds

Matthew Rubin Chief Investment Officer

 

1. Last week, stronger producer-price data signaled tariff-related cost pressures, supporting a cautious policy outlook.
2. Labor data pointed to a steady but slower employment environment, giving policymakers time to assess inflation trends.
3. An announcement of higher global tariffs raised policy uncertainty, but is not expected to significantly disrupt economic activity.

 

1. Producer Prices Highlight Early Tariff Pressures

Producer price data released last week came in stronger than expected, with headline prices rising 0.5% in January, well above forecasts for a 0.2% increase.¹ Higher service-sector prices drove much of the increase, particularly in wholesale and retail, where firms appeared to expand margins.

There were also signs of rising costs for goods. Core goods prices, excluding food and energy, rose 0.7%, indicating broader pricing pressure across supply chains.¹ These trends suggest that some businesses began passing higher input costs onto consumers, which may be linked in part to tariffs.

Overall, last week’s report indicated that price pressures resulting from tariffs introduced last year are still working their way through the economy. These upstream cost increases are likely to feed into other inflation measures in the near term.

As a result, the data support a more patient approach from policymakers. With inflation showing signs of persistence early in the year, there appears to be less urgency to adjust rates in the near term, allowing time for conditions to moderate.

2. Labor Market Shows Signs of Gradual Cooling

Last week’s initial jobless claims rose modestly to 212,000, up from 208,000 the prior week and broadly in line with expectations.² Continuing claims, which track the total number of people receiving benefits, edged down to 1.83 million, slightly below forecasts.² December employment numbers were also released and showed that job openings declined to 6.5 million in December, with 7.4 million individuals counted as unemployed.²

Last week’s data suggests the labor market is stabilizing rather than weakening. Hiring activity appeared to slow, while layoffs remained contained. The unemployment rate held at a relatively low 4.3%, reinforcing the view that overall conditions remain steady.²

This backdrop may give policymakers additional time to evaluate the path of inflation. With labor conditions no longer tightening, but not deteriorating meaningfully either, there is less urgency to quickly adjust policy.

3. Tariff Increase Adds Uncertainty, Limited Immediate Impact

Trade policy developments drew attention last week with the introduction of a new global tariff framework. On February 20th, the Trump administration announced a 10% tariff under Section 122 of the Trade Act, following a court decision invalidating the prior tariff policy.³ Over last weekend, that 10% rate was raised to 15%, with the policy set to remain in place for up to 150 days.³

Estimates suggest that the U.S. tariff rate may decline modestly to around 13.7% under the updated structure, compared with higher levels under previous measures.⁴ While the current tariff is temporary, additional actions could follow through other legal channels once it expires.

Despite the shift, the near-term economic impact appears limited. Broader conditions remain stable, supported by steady growth and resilient corporate performance. However, last week’s announcement contributed to a more uncertain policy backdrop, particularly related to trade.

For the period ending 2/27/26.
* 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 U.S. Bureau of Labor Statistics
² U.S. Department of Labor
³ FactSet
⁴ Bureau of Labor Statistics

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