United States economy and Federal Reserve policy Report Interpretation

Overview

This US economic weekly assesses the implications of Chair Warsh’s more hawkish inflation messaging alongside evidence of resilient labor markets and accelerating business investment. Nomura’s central view remains that the Fed will hold policy steady, supported by waning inflation momentum, but it highlights a higher bar for benign inflation data and meaningful upside risks to policy rates.

Core views

Nomura characterizes Chair Warsh’s Jackson Hole remarks as hawkish because he stressed the Fed’s PCE inflation target and suggested policy may need to react if disinflation does not proceed “with speed.” Warsh discounted recent benign inflation readings and cooling wage growth as evidence of an improved underlying trend. Instead, he emphasized a diffusion measure: although the share of PCE components rising more than 3% over the prior six months has fallen from post-pandemic highs, it remains elevated. He also highlighted strong private domestic final demand and viewed weak labor turnover as post-pandemic payback rather than labor-market vulnerability. Nomura notes that this PCE diffusion measure will not be updated in time for the September FOMC meeting. Warsh did not explicitly signal a near-term rate hike, and Nomura continues to expect benign inflation data to keep policy on hold. However, the report judges that his stance now aligns more closely with FOMC centrists who could favor hikes if disinflation stalls. Warsh also retreated from giving forward guidance and said task-force recommendations would come later and would not affect current policy decisions. Nomura sees fading inflation momentum as supportive of a hold, but says elevated inflation, credibility concerns and the risk that the Fed falls behind the curve leave policy risks skewed toward tightening. For the August employment report, Nomura expects headline nonfarm payrolls to rise 60k after July’s surprise decline, with private payrolls up 45k. It expects some reversal of July’s weakness in local-government education employment as seasonal summer volatility fades. The unemployment rate is forecast to fall to 4.0%, the lowest since January 2025, supported by subdued layoffs and tentative improvement in hiring indicators. The Conference Board labor differential rose to a four-month high of 7.5 in August, while Nomura expects July JOLTS openings to rise to 7.4 million and the job-openings rate to edge up to 4.5% from 4.4%. Jobless claims remained near the low end of their post-pandemic range, weekly ADP employment stabilized, and the S&P services PMI employment index reached its highest level since January 2025. Nomura therefore expects the report to confirm that labor conditions remain healthy. Nomura expects average hourly earnings growth to rebound to 0.4% m-o-m in August, partly because of a favorable calendar effect. It distinguishes this technical rebound from the underlying trend, which it says is gradually decelerating as alternative wage measures soften. The preliminary payroll benchmark revision of -79k, equivalent to roughly 7k fewer jobs per month over the year through March 2026, was negative but modest relative to episodes that materially changed the labor-market narrative. Nomura does not expect that revision to alter the Fed’s focus on inflation. It flags the expiration of temporary protected status for Haitian asylum seekers as a downside risk to near-term labor supply. Business investment is the principal growth upside in the report. Core capital-goods shipments rose 1.4% m-o-m in July, above Nomura’s 0.6% forecast and consensus expectations of 1.0%, while June growth was revised 40bp higher to 2.4%. The three-month average reached its fastest pace since January 2022 and reflected broad-based strength. Capital-goods imports posted their largest monthly increase in the series’ history, and trading-partner data suggest technology-related imports could accelerate further. Together with stronger-than-expected July personal spending, trade data, durable-goods orders, and higher wholesale and retail inventories, these developments led Nomura to raise Q3 GDP tracking to 3.6% q-o-q annualized from 2.7% and real final sales to private domestic purchasers to 2.8% from 1.7%. In its broader outlook, Nomura expects growth to remain robust, led by business investment that is broadening beyond AI and resilient consumer spending. It expects some Q3 consumer payback after temporary Q2 support from tax refunds, income growth and other factors, but characterizes this as a modest momentum slowdown rather than serious deterioration. Housing remains weak amid higher mortgage rates. Nomura forecasts core PCE inflation at 3.3% y-o-y in Q4 2026, though planned BEA methodological changes could lower that reading by about 20bp to 3.1%. It expects waning tariff pressures, lower crude prices, residual seasonality and moderating wage growth to support gradual H2 disinflation, while warning that the AI investment boom could generate stronger price pressure.

Analysis framework

Nomura combines Fed communication analysis with inflation breadth indicators, labor-market data, business-investment and trade releases, and GDP tracking. Its weekly tracker estimates a latent factor from 13 daily and weekly US industrial and consumer indicators using principal component analysis, then calibrates that factor to four-quarter real GDP growth.

Methodology notes

• Other

  Principal component analysis-based weekly data tracker

  Nomura extracts the first common factor from 13 daily and weekly industrial and consumer indicators and calibrates it to track four-quarter real GDP growth.

• Other

  Inflation diffusion approach

  The report uses the share of PCE components with annual price increases above 3% to assess how broad underlying inflation pressure remains, rather than relying only on an aggregate inflation reading.

Key data

• Q3 2026 GDP tracking estimate3.6% q-o-q annualizedRaised from 2.7% the previous week.
• Real final sales to private domestic purchasers2.8% q-o-q annualizedRaised from 1.7% previously.
• August nonfarm payroll forecast60kExpected rebound after July weakness; private payrolls are forecast at 45k.
• August unemployment-rate forecast4.0%Expected to be the lowest since January 2025.
• August average hourly earnings forecast0.4% m-o-mPartly reflects a favorable calendar effect; underlying wage growth is seen gradually decelerating.
• July core capital-goods shipments1.4% m-o-mAbove Nomura’s 0.6% forecast and consensus of 1.0%; June was revised up 40bp to 2.4%.
• Q4 2026 core PCE inflation forecast3.3% y-o-yPlanned BEA methodological changes could lower it by about 20bp to 3.1%.

Impact & implications

Nomura argues that resilient labor conditions and capex-led growth keep the Fed focused on inflation rather than labor-market weakness. Waning inflation momentum supports its baseline of an unchanged policy stance, but a halt in disinflation, renewed credibility concerns, or stronger AI-related price pressure could bring tightening risk back into focus.

Risks

• A lack of forward guidance, muddled Fed communication, or renewed political pressure on FOMC participants could undermine inflation-fighting credibility and trigger a sharp market reaction.
• Further geopolitical escalation could tighten financial conditions and worsen the fiscal outlook.
• A bust in the AI investment boom could cause a material asset-price correction and weaker business investment.
• AI-driven memory-chip shortages or supply-chain disruption from a prolonged Iran war could generate a second round of goods inflation.
• The expiration of temporary protected status for Haitian asylum seekers poses downside risk to near-term labor supply.

What to watch

• Upcoming inflation data, particularly whether disinflation continues quickly enough to keep the Fed on hold.
• The August employment report: payrolls, unemployment, hourly earnings and evidence on public-sector employment normalization.
• JOLTS openings, jobless claims, ADP employment and services-sector employment indicators for confirmation of labor-market resilience.
• Capital-goods shipments, technology-related imports, durable-goods orders and trade data for evidence that capex momentum is broadening.
• Signs that AI investment, memory-chip shortages or supply-chain disruption are adding to inflation pressure.