Economic and Market Commentary – February 2026
- Mar 18
- 5 min read
At the conclusion of January’s commentary piece, we briefly referenced President Trump’s announcement of his chosen nominee to replace the current Chair of the Board of Governors of the Federal Reserve, Jerome Powell, when his term expires in May 2026. The chosen nominee, Kevin Warsh, is a renowned, former Fed Board Governor (2006-2011) who coincidently was a member of the monetary policy-making committee during the inception and depths of the Great Financial Crisis (GFC). During his tenure as a prominent Fed official, and the nearly subsequent decade and a half thereafter, Warsh, via a myriad of public speeches, academic papers, and news publications, is on record historically as being an ardent “hawk” in his restrictive stance regarding the efficacy and implementation of monetary policy and its corresponding reaction functions. In addition to favoring a truncated and bounded Federal Reserve balance sheet, Warsh seemed to be principally concerned about inflationary pressures and the possibility of the public’s inflation expectations becoming unanchored from the Fed’s 2% inflation objective. In fact, during the GFC, when then Chairman Ben Bernanke pioneered quantitative easing to add accommodation and inject liquidity into a faltering U.S. economy, Warsh was a notable, outspoken critic of the policy endeavor. Given Warsh’s record, and President Trump’s incessant lobbying for a lower federal funds rate, it will be interesting to see if the nominee stays true to his monetary policy ideology, or if he advocates the FOMC to lower rates to appease the President.
On February 20, approximately one year after the onset of the dismantling of the USMCA and newly-instituted duty rates on allied trading partners, the Supreme Court, in a 6-3 ruling, struck down a critical portion of President Trump’s tariff agenda, invalidating the invocation of the International Emergency Economic Powers Act (IEEPA), cementing his use of the IEEPA to impose tariffs, illegal. Moreover, the ruling highlighted that the President made his tariff implementation decisions unilaterally, without Congressional approval, which is ultimately the governing branch that possesses taxing authority under the U.S. Constitution. Although this was a significant blow to the Administration’s trade policy initiative, the President and his trade advisors suggested there were other avenues and provisions of trade legislation they could pursue (Sections 122, 232, 301, and/or 338) to achieve tariff objectives.
On the final two trading days of the month, despite any meaningful macroeconomic catalyst, non-money-market yields declined precipitously, leading to exceptional fixed income monthly returns amongst all publicly-traded broad-based security types (Treasuries, agencies, corporate bonds, and securitized products). While simply conjecture, the descent in yields may have been caused by short-position covering, and an uptick in acrimonious geopolitical tensions and rhetoric. In equity indices, the S&P 500 and DJIA were essentially flat, while the NASDAQ was dragged down by software-linked names due to the possibility of “creative destruction” caused by the rapidly burgeoning development and buildout of artificial intelligence capabilities and data centers.
Lastly, concerning geopolitics, on February 28, the U.S. and Israel launched coordinated - what each nation categorized as - large-scale “preemptive” strikes against Iran after months (more seemingly years) of failed negotiations regarding the cessation of Iran’s nuclear weapons program. We are not geopolitical strategists, but it is safe to assume that any extended conflict would have a disruptive effect on risk and commodities markets.
U.S. Treasury yield curve underwent a pronounced bull steepening as the 2yr – 30yr tenors all experienced double-digit descents, while money-market yield movements were muted. Presumptively, geopolitical frictions and short-covering may have been the catalysts.
2-year/10-year spread: 56 basis points
3-month/10-year spread: 28 basis points
2-year/5-year spread: 13 basis points
3-month/30-year spread: 95 basis points
U.S. Treasury Yield Curve Source: Bloomberg
February 2026 Macroeconomic Highlights
Inflation, Expectations, and Consumer Sentiment1:
CPI: 2.4% year-over-year (+0.2% month-over-month); Core CPI: 2.5% year-over-year (+0.3% month-over-month)
PCE: 2.9% year-over-year (+0.4% month-over-month);Core PCE: 3.0% year-over-year (+0.4% month-over-month)
PPI: 2.9% year-over-year (+0.5% month-over-month); Core PPI: 3.6% year-over-year (+0.8% month-over-month) Core PPI less trade services: 3.4% year-over-year (+0.3% month-over-month)
Inflation Expectations: 1-year horizon: 3.1%, 3-year horizon: 3.0%, and 5-year horizon: 3.0%
Consumer Sentiment: 56.6 vs. 56.4 in January 2026; Current Conditions: 56.6 vs. 55.4 in January 2026
Consumer Expectations: 56.6 vs. 57.0 in January 2026
Labor Market2: The U.S. economy added +130,000 nonfarm payrolls in January, trouncing the +65,000 expected by economists surveyed by Bloomberg. Notable job gains occurred in health care (+82,000), social assistance (+42,000), and construction (+33,000). Federal government (-34,000) and financial activities (-22,000) lost jobs.
U-3 official unemployment rate: 4.3% vs. 4.4% expectation: -0.1% from December 2025.
U-6 unemployment rate (marginalized, part-time workers for economic reasons): 8.0% (-0.4%).
Labor force participation rate: 62.5% (+0.1%); Employment-to-population ratio: 59.8% (+0.1%).
Average hourly earnings for private nonfarm payrolls rose 15 cents to $37.17 (+0.4% month-over-month, +3.7% year-over-year).
Revisions: December 2025 cut -2,000 to +48,000; November 2025 sliced -15,000 to +41,000.
Employment Cost Index: +0.7% in the fourth quarter of 2025 vs. +0.8% in the third quarter of 2025.
Gross Domestic Product (GDP)3: According to the advance (initial) estimate, real GDP increased at an annual rate of +1.4% in the fourth quarter of 2025 vs. +4.4% in the third quarter of 2025. Real GDP increased +2.2% in 2025.
Consumption: +2.4%; GDP Price Index: +3.6%; PCE Price Index: +2.9%; Core PCE Price Index +2.7%.
Real disposable personal income: +0.1% vs. 0.0% in the third quarter of 2025.
Personal savings rate as a percentage of disposable income: 3.6% vs. 4.2% in the third quarter of 2025
Housing Market4: Existing-home sales plunged -8.4% (month-over-month) from December to a seasonally-adjusted annual rate of 3.91 million in January. Month-over-month sales subsided in all four major regions.
West: -10.3%, South: -9.0%, Midwest: -7.1%, and Northeast: -5.9%.
Year-over-year sales waned -4.4%, down from 4.09 million in January 2025.
Total housing inventory registered 1.22 million units, -0.8% from December, but +3.4% from one year ago (1.18 million units). Unsold inventory sits at a 3.7-month supply at the current sales pace.
The median existing-home price for all housing types was $396,800, +0.9% from January 2025 ($393,400), as prices rose in the Northeast, Midwest, and South, but receded in the West.
Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.10%.
New Home Sales: 745,000 (-1.7% month-over-month) – December 2025 reading.
1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers
2 Source: Bureau of Labor Statistics (BLS)
3 Source: Bureau of Economic Analysis (BEA)
4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development
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