by The Gould Asset Management Team
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Third Quarter of 2026. The excerpt is posted here for the benefit of our blog subscribers.
US Economy Holds Steady as Hiring Stalls
The US economy grew at an annualized rate of 2.2% in the second quarter of 2026, easing slightly from a revised 2.5% in the first quarter. Consumers drove the result, with spending accelerating to an annualized 3.8% pace after a sluggish start to the year, while business investment also contributed. Growth would have been even stronger without a jump in imports, much of it computer chips bound for AI infrastructure (imports are subtracted from GDP).
Consumer spending accelerated in August, but households dipped into savings to pay for it. Inflation adjusted spending jumped 0.6% in the month, outpacing income and pushing the savings rate to its lowest level since 2022.
Hiring slowed sharply through the quarter. Payroll gains averaged roughly 50,000 per month, ending with just 29,000 in September after downward revisions to the prior two months. The unemployment rate ticked up to 4.2% but has stayed within a narrow range since March, consistent with the low-hire, low-fire pattern of the past year.
Manufacturing expanded for a ninth consecutive month, its longest run since 2022. The ISM Manufacturing PMI held at a solid 54.5 in September after peaking in July at its highest level in four years. Cost pressures returned, however. The prices index jumped to 77.9, nearly back to where it stood at the start of the Iran war, as tariffs, steel, aluminum, and energy pushed input costs higher.
Warsh Makes His Move as the Fed Hikes Rates
The Federal Reserve raised the federal funds rate by 25 basis points to 3.75%–4.00% at its September meeting, its first increase since 2023. The unanimous decision followed a July meeting in which the Fed held steady but three regional bank presidents dissented in favor of a hike, an early sign that support for tighter monetary policy was building.
Fed Chair Warsh made clear that bringing down inflation is now the Fed’s top priority. The September statement dropped earlier language attributing elevated inflation to energy supply shocks, a sign that officials increasingly see price pressures as broad-based rather than temporary. Warsh again declined to submit his own projection and offered little guidance on the timing of future moves.
The Fed’s latest forecast points to more tightening ahead. Officials raised their 2026 growth forecast to 2.3% from 2.2%, lowered expected year-end unemployment to 4.1%, and nudged core inflation up to 3.4%. Most participants expect at least one more 0.25% rate hike by year-end.
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