August 21, 2026
It was a relatively light week for economic data but intra-day market volatility for fixed income investors remains elevated. The hyperscaler and artificial intelligence (AI) build out continues to garner much attention, and the overall economy is benefitting from the large spending projects being implemented. Notably, regional manufacturing activity was strong in August, with the Empire Manufacturing Index rising to 20.6 and the Philadelphia Fed Index increasing to 47.4, both well above expectations and at multi-year highs. Coincident indicators on employment are mixed but positive, with the Automatic Data Processing Four Week Moving Average net change at 9.5k as of August 1, compared to a year-to-date high of 40.75k on May 1. The four week moving average on jobless claims as of August 14 remains low at only 204k, with both data releases indicating the employment backdrop remains stable. Overall, the health of the US economy remains sound.
Treasury yields remain elevated, and this week Treasury Secretary Scott Bessent unexpectedly announced an increase in purchases of less liquid, longer-dated Treasury securities, just two weeks after the Treasury released its quarterly buyback schedule. While lower interest rates would help reduce government financing costs, persistent fiscal deficits, geopolitical uncertainty, commodity price pressures, and the lack of countercyclical fiscal policy continue to support a higher Treasury term premium. The Chandler team expects this repricing of term premium to remain an important market theme and gain broader acceptance among investors over the remainder of the year.
Recent data releases on inflation have been benign, and we expect the trend to continue next Wednesday when the Personal Consumption Expenditures (PCE) inflation report is released. The consensus for headline inflation is to expand at only 0.1% for the month, with core PCE consensus at only 0.2% for the month. The annualized PCE inflation numbers remain comfortably above the Federal Reserve’s 2% policy objective; however, our team believes the lack of material pass-through to core inflation from elevated commodity prices is a positive development which is supportive of our view on the trajectory of monetary policy. The Chandler team continues to expect the Federal Open Market Committee (FOMC) to hold the federal funds rate in its current 3.50% to 3.75% target range through the remainder of 2026. We are anticipating another volatile week in the fixed income markets next week as Fed Chair Kevin Warsh will give the keynote speech at the annual Jackson Hole Symposium on Friday without a question and answer portion; the title of the speech has yet to be officially released.
Next Week: Next Week: Chicago Fed National Activity Index, S&P Cotalilty Home Price Index, New Home Sales, Consumer Confidence, Personal Income, Personal Spending, PCE Inflation, GDP (2Q second release), jobless claims, Chicago PMI, and University of Michigan sentiment.
Written by William Dennehy II, CFA, Co-Chief Investment Officer