Fed Division, Rising Inflation & Strong GDP

This week’s economic data includes: (1) the April Federal Open Market Committee (FOMC) meeting, (2) consumer confidence for April, (3) Q1 2026 GDP, (4) PCE (Personal Consumption Expenditure) price index, personal income, and personal spending for March, (5) weekly initial jobless and continuing claims and (6) market trends across equities, oil and Treasury markets along with rate-cut expectations.

 

KEY SUMMARY:

The April FOMC meeting may have held rates steady, but it laid bare a sharply divided Fed—highlighting growing resistance to easing, Chair Powell’s decision to stay on the Board, and a tricky handoff to incoming chair Kevin Warsh just as markets pivoted more hawkishly on the outlook for rates.

The April 28–29 FOMC meeting landed exactly where markets expected on rates, but almost everything else felt unsettled. The Fed held the funds rate at 3.5%–3.75%, yet four dissents—the most since the early 1990s—revealed how fractured the committee has become. Three regional presidents pushed back hard against statement language that still hinted at future cuts, arguing it no longer fits with sticky inflation, rising energy prices, and ongoing Middle East tensions; meanwhile, another governor dissented in favor of cutting. The bigger takeaway was that concerns are shifting toward the risk that the next move could be a hike, not a cut, even as Chair Jerome Powell admitted the committee is gravitating toward a more neutral stance. Powell’s final press conference as chair added another layer of complexity when he announced he will stay on as a governor until the Justice Department investigation of the Fed is fully resolved, setting up an unusual dynamic for incoming chair Kevin Warsh. Warsh now inherits a divided committee that includes a former chair at the table, growing pressure from the White House to cut rates, and an increasingly hawkish bloc of regional presidents—and markets immediately took notice, with short‑term Treasury yields jumping, the dollar strengthening, and rate expectations pushed further out as investors reassessed the Fed’s path.

 

April’s consumer confidence uptick shows households feeling a bit better about jobs and income, but still staying cautious—keeping spending focused on essentials as high inflation, rising rates, and recession worries continue to weigh on the outlook.

Consumer confidence ticked a little higher in April, but the overall mood still feels cautious rather than upbeat. The Conference Board’s Consumer Confidence Index rose to 92.8—the highest reading so far this year and slightly above expectations—marking the first year‑over‑year gain since late 2024. Under the hood, though, sentiment reflected a push and pull: consumers felt better about job prospects and income, but those gains were tempered by anxiety over elevated gasoline prices tied to Middle East tensions. Views of current conditions slipped marginally, with business conditions seen as slightly weaker, even as perceptions of the labor market improved modestly—a dynamic closely watched by investors as a signal of underlying momentum.

 

Looking ahead, optimism picked up a bit but remained firmly in cautious territory. The Expectations Index rose to 72.2, still well below levels consistent with recession‑free confidence, as consumers grew more positive about incomes and jobs but more skeptical about future business conditions. Inflation expectations edged down slightly but stayed uncomfortably high, while a growing majority of consumers now expect interest rates to rise, reinforcing expectations of tighter financial conditions. Spending plans continued to shift toward essentials and lower‑cost options, with used cars favored over new, modest improvement in housing‑related purchases, and softer demand for discretionary travel and services. In short, consumers are coping—but they’re doing so carefully, staying value‑focused and defensive amid lingering inflation, rate pressures, and elevated recession concerns.

 

Q1 growth rebounded to a solid 2.0%, but it was a tale of two engines—AI‑driven business investment and a post‑shutdown government rebound did the heavy lifting, while consumers grew more cautious and trade weighed on the overall pace.

The U.S. economy picked up some speed in the first quarter, with real GDP growing at a 2.0% annualized pace after a sluggish end to 2025—though it still came in a bit short of expectations. The rebound was helped by the economy getting back on track after the government shutdown and, more importantly, a surge in business investment tied to AI and technology. Consumer spending continued to grow, driven largely by services like healthcare and financial services, but momentum cooled slightly as households pulled back on discretionary items such as dining and travel. With inflation still elevated and higher energy costs squeezing purchasing power, consumers appear increasingly focused on essentials, which could cap growth going forward.

 

The real standout this quarter was business investment, which surged as companies poured money into AI‑related equipment, software, and intellectual property, reinforcing the idea that technology spending remains a powerful structural tailwind for growth. Government spending also rebounded sharply following the prior quarter’s shutdown, providing a meaningful boost, while trade weighed heavily on GDP as imports surged to meet demand for advanced tech equipment. Beneath the headline numbers, a key measure of underlying demand—final sales to private domestic purchasers—accelerated to a healthy 2.5%, suggesting the private sector remains resilient despite inflation pressures, geopolitical uncertainty, and lingering softness in housing. In short, growth is being carried more by businesses than consumers, with AI investment doing much of the heavy lifting.

 

March’s data sent a clear signal: inflation—especially from surging energy prices—came roaring back, boosting nominal incomes and spending but steadily eroding real purchasing power and forcing consumers to dip further into savings just to keep up.

March delivered a clear inflation wake‑up call. Headline PCE prices jumped 0.7% on the month—the biggest increase since mid‑2022—driven overwhelmingly by a surge in gasoline prices that accounted for nearly two‑thirds of the gain. While energy did most of the heavy lifting, price pressures were broad‑based, with increases across durable goods, nondurables, and services such as airfares, auto repairs, and household maintenance, alongside a renewed pickup in shelter costs. On a year‑over‑year basis, headline PCE inflation accelerated sharply to 3.5%, while core PCE rose to 3.2%, reinforcing the message that underlying inflation remains sticky even as monthly core readings have moderated slightly.

 

At the same time, households saw a welcome boost to nominal income and spending—but inflation largely erased the benefit. Personal income jumped 0.6% in March, driven by higher wages, farm income, and dividends, and consumer spending rose a solid 0.9%, led again by higher gasoline costs and steady gains in services. Yet after adjusting for inflation, real disposable income declined for a second straight month, real spending growth slowed, and the personal saving rate fell to its lowest level since 2022 as households dipped into savings to keep up with higher costs. The takeaway is a familiar one: consumers are still spending, but rising prices—especially at the pump—are steadily eroding purchasing power, keeping pressure on household balance sheets and reinforcing the Fed’s cautious stance on inflation.

 

The latest jobless claims report underscored just how tight the labor market remains, with layoffs near historic lows and little sign—at least for now—that geopolitical tensions or headline job cuts are translating into broader labor market stress.

The latest jobless claims report sent a reassuring signal that the labor market remains remarkably resilient: weekly initial claims fell sharply to just 189,000—the lowest level since 1969 and well below expectations—while continuing claims also declined to a two‑year low. Both measures point to a “low‑firing” environment, suggesting that, despite geopolitical tensions and headline job‑cut announcements, layoffs have yet to meaningfully pick up. In short, employers are still holding on to workers, and the labor market continues to show surprising stability even amid broader economic and global uncertainty.

 

Markets ended the week with a split personality—stocks charging to fresh record highs on strong earnings and AI optimism, while rising oil prices, higher Treasury yields, and a hawkish Fed backdrop kept inflation and rates firmly in the spotlight.

Markets wrapped up the week on a strong note, with equities powering to new highs as optimism stayed firmly in control. The S&P 500 and Nasdaq both pushed to fresh record levels, fueled by standout big‑tech earnings, continued enthusiasm around AI, and resilient economic data like GDP and the April Manufacturing PMI. Earnings season delivered plenty of good news, with nearly 88% of companies topping expectations, helping lift all major indexes—including the Dow and small‑cap stocks—higher for both the week and the year. Beneath the surface, however, energy markets were anything but calm. Oil prices were volatile, spiking early in the week as geopolitical tensions escalated around the Strait of Hormuz before easing slightly on profit‑taking and tentative signs of diplomacy. Even so, both Brent and West Texas Intermediate (WTI) crude oil finished the week sharply higher, pushing U.S. gasoline prices up meaningfully—especially in California—keeping inflation pressure firmly in focus.

 

Meanwhile, the bond market delivered a more cautious message. Treasury yields climbed across the curve for a second straight week, with the biggest moves in the 2‑ to 7‑year range, as investors leaned into a “higher‑for‑longer” rate outlook following the April FOMC meeting and hot inflation data. That shift left rate expectations largely unchanged, with markets still pricing in no Fed cuts through 2026 or 2027. Hopes for potential mid‑2027 rate relief that briefly surfaced the prior week faded quickly, replaced by pricing that now assigns only a minimal probability—if not a slight risk—of rate hikes further out. In short, stocks are celebrating growth and earnings momentum, while bonds and energy markets continue to flash inflation and policy caution.

 

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DETAILED ANALYSIS:

April 28-29 FOMC Meeting:

The April 28–29 FOMC meeting delivered a widely expected decision to hold the federal funds rate unchanged at 3.5%–3.75%, but the outcome exposed one of the deepest policy rifts in decades. Four officials dissented—the most since 1992—with three regional bank presidents (Cleveland Fed President Beth Hammack, Dallas Fed President Lorie Logan, and Minneapolis Fed President Neel Kashkari) supporting the rate hold but objecting to the statement’s reference to “the extent and timing of additional adjustments.” They argued that the language retained an implicit easing bias inconsistent with elevated inflation risks and heightened geopolitical uncertainty. While one governor dissented in favor of a rate cut, the dominant signal from the dissents was growing concern that the next policy move could plausibly be a hike rather than a cut. Chair Jerome Powell acknowledged that the center of the committee is moving toward a more neutral stance, but said a majority was not yet prepared to formally shift guidance, instead emphasizing uncertainty tied to the Middle East conflict and rising energy prices.

 

Powell’s final press conference as chair was overshadowed by his announcement that he will remain on the Board of Governors until the Justice Department investigation is fully resolved with transparency and finality, noting that the probe could be reopened if recommended by the Fed’s Inspector General. Incoming chair Kevin Warsh will face the unusual challenge of leading a committee that includes a former Fed chair still sitting at the table, while simultaneously navigating a White House pressing for rate cuts despite rising inflation and attempting to build consensus within a fractured committee marked by a growing, increasingly vocal hawkish bloc among regional presidents resistant to easing bias. Markets reacted swiftly to the hawkish undertone, with two‑year Treasury yields jumping, the dollar strengthening, and rate markets pushing out expectations for easing, as some investors increased bets on a future rate hike.

 

Consumer Confidence – April Update:

The Conference Board reported that its Consumer Confidence Index (CCI) edged up 0.6 points to 92.8 in April, following an upwardly revised March reading of 92.2 and marking the highest level of confidence so far this year. The reading also came in above market expectations. On an annual basis, consumer confidence increased by 7.1 points—its first year‑over‑year gain since December 2024. While confidence improved modestly, overall sentiment remained little changed, reflecting a balance between elevated concerns over rising gasoline prices amid Middle East tensions and improving perceptions of the labor market and income prospects.

 

Present Situation Index

The Present Situation Index, which measures consumers’ assessments of current business and labor market conditions, slipped 0.3 points to 123.8 in April. Net assessments of current business conditions weakened, as the share of respondents describing conditions as “good” rose only slightly, while the share labeling conditions as “bad” increased more noticeably.  Labor market perceptions improved modestly. The labor market differential—the share of consumers saying jobs are “plentiful” minus those saying jobs are “hard to get”—rose to 7.5, driven primarily by a decline in the share reporting jobs are hard to get, while the share saying jobs are plentiful was little changed. This measure continues to be closely watched by markets as a key indicator of labor market momentum.

 

Expectations Index

The Expectations Index, which tracks consumers’ short‑term outlook for income, business activity, and labor market conditions, rose 1.2 points to 72.2 in April. Despite the improvement, the index remained below the recession signal threshold of 80 for the fifteenth consecutive month. Expectations for labor market conditions and household income six months ahead improved modestly, while expectations for future business conditions became slightly more pessimistic.

 

Demographics

On a six‑month moving average basis, confidence continued to trend lower among consumers aged 35 and older, while respondents under age 35—particularly Millennials and Gen Z—remained relatively more optimistic. By income, confidence softened across most income groups. By political affiliation, Republicans remained the most optimistic, while confidence declined among Independents and improved slightly among Democrats.

 

Inflation and Recession Sentiment

Inflation expectations remained elevated in April, though showing tentative signs of stabilization. Consumers’ average inflation expectation for the next 12 months edged down slightly to 6.1% from 6.2% in March, while the median inflation expectation eased to 5.1% from 5.2%. Despite the modest improvement, inflation expectations remained well above pre‑pandemic norms, underscoring persistent cost‑of‑living concerns.

 

At the same time, consumers increasingly anticipated higher interest rates. The share of respondents expecting interest rates to rise over the next 12 months climbed to 62.8% in April, up from 59.3% in March and among the highest readings over the past year. Expectations for interest rates to remain the same or decline fell modestly, reinforcing the view that consumers expect restrictive financial conditions to persist.

 

Equity market expectations were mixed but improved slightly at the margin. The share of consumers expecting stock prices to increase over the next year rose to 49.2% from 47.4%, while the share expecting prices to decline edged down to 30.9%. However, stock market optimism remained below peaks seen earlier in the year, reflecting ongoing uncertainty around inflation, interest rates, and economic growth.

 

Recession concerns remained elevated. The share of consumers stating that a U.S. recession over the next 12 months is “very likely” increased, along with a modest rise in those who believe the economy is already in a recession. Meanwhile, the share of respondents viewing a recession as “not likely” declined.

 

Spending and Purchase Plans

Consumers’ plans to purchase big‑ticket items over the next six months continued to shift away from “yes” and “maybe” responses toward “no,” although the share responding “yes” remained higher than other options. Used vehicles, furniture, televisions, and smartphones remained the most popular categories for future purchases, with furniture continuing to lead among higher‑priced items.

 

Auto buying intentions continued to improve on a six‑month moving average basis, with a strong and persistent preference for used vehicles over new cars. Homebuying expectations staged a mild recovery on a six‑month basis for both existing and new homes, with consumers continuing to favor existing homes. Plans to purchase home furnishings, appliances and other “white goods,” and electronics also continued to improve modestly.

 

Planned spending on services softened broadly in April. Restaurants, bars, and take‑out remained the top category for expected spending, followed by beauty and personal care and streaming and mobile services. Utilities and healthcare continued to rank above hotel and motel stays, consistent with a broader moderation in vacation plans. Overall, consumer spending intentions remained focused on lower‑cost, essential, and value‑oriented services, with discretionary travel spending continuing to ease.

 

Q1 2026 GDP – Initial Release: 

According to the Bureau of Economic Analysis (BEA) advance estimate, U.S. real GDP increased at an annualized rate of 2.0% in Q1 2026, rebounding from 0.5% growth in Q4 2025 but coming in below market expectations of 2.3%. The pickup in growth was primarily driven by a rebound from the longest government shutdown in Q4, as well as a significant acceleration in Al-related business investment.

GDP Contribution Breakdown

• Consumer Spending: +1.08% vs. +1.30% prior
• Private Investment: +1.48% vs. +0.40% prior
• Net Exports: -1.30% vs. -0.22% prior
  • Increase in imports: -2.62%
  • Increase in exports: +1.32%
• Government Spending: +0.73% vs. -0.99% prior

Consumer Spending:

Consumer spending, which accounts for roughly two‑thirds of GDP, increased 1.6% in Q1 (down from 1.9% in Q4 but above market expectations of 1.4%). Growth was primarily driven by services consumption, including health care and financial services, partially offset by weakness in goods. The slower pace of growth may have been partially attributable to severe winter weather across much of the U.S. at the start of the year, with consumers directing spending toward necessities.

Spending on discretionary categories was more subdued. Food services and accommodations declined 2.8%, while recreation services rose only modestly, up 0.2% in the first quarter. These trends are consistent with consumer confidence surveys showing spending intentions skewed toward lower‑cost and essential services rather than big‑ticket discretionary purchases. With inflation remaining elevated and consumer purchasing power eroded by the prolonged conflict with Iran, consumer spending could weaken further, posing a downside risk to economic growth.

• Goods: -0.1% vs. 0.3% prior
  • Durable goods: 0.0% vs. +0.1% prior
    • A 5.2% increase in motor vehicles & parts (contributing 0.12% to GDP) was offset by a 9.2% decline in recreational goods and vehicles (subtracting 0.22% from GDP),
  • Nondurable goods: -0.2% vs. +0.4% prior
    • Driven by a 1.4% decline in food and beverages for off-premises consumption, subtracting 0.07% from GDP
  • Services: +2.4% vs. +2.7% prior
    • Health care: +4.5%
      • Contributed 0.51% to GDP, driven by outpatient, hospital, and nursing home services
    • Financial services: +4.6%
      • Contributed 0.26% to GDP

Private Investment:

Private investment accelerated meaningfully in Q1, rising 8.7% after 2.3% growth in Q4, driven primarily by AI‑related investment in information processing equipment and intellectual property products. This strength reflects ongoing structural demand for productivity‑enhancing capital. Rapid AI investment is likely to remain a key source of economic expansion, as major technology firms—including Microsoft, Amazon, Meta, and Google—have indicated in recent earnings reports that combined AI‑related capital spending could total approximately $725 billion in 2026.

 

• Fixed investment: +6.2% vs. +1.5% prior, contributing 1.08% to GDP
  • Nonresidential investment: +10.4% (up from +2.4% in Q4), contributing 1.39% to GDP
    • Equipment: +17.2% (up from 4.3% in Q4), primarily driven by:
      • Information processing equipment: +43.4% (up from 37.0% in Q4), contributing 0.70% to GDP
        • Computers & peripheral equipment (+67.4%), contributing 0.58% to GDP
      • Intellectual property products: +13.0% (up from 5.4% in Q4), primarily driven by:
        • Software: +22.6% (up from 4.8% in Q4), contributing 0.51% to GDP
      • Structures: -6.7%, declining for the 9th straight quarter
    • Residential investment: -8.0%, declining for the 5^th straight quarter, primarily driven by affordability challenges
  • Inventories: Contributing 0.40% to GDP, partly reflecting inventory buildup amid volatility in energy prices and input costs, driven by supply chain disruptions related to the conflict with Iran.

 

Government Spending:

Government spending increased 4.4% in Q1, rebounding from a 5.6% decline in Q4 and adding 0.73 percentage points to GDP. The increase was primarily driven by a recovery in federal government spending following the Q4 shutdown, which disrupted services and employee compensation.

• Federal: +9.3% (up from -16.6% in Q4), adding 0.56% to GDP, primarily led by:
  • National defense consumption: +6.2% (up from -13.3% in Q4)
  • Nondefense consumption expenditures: +26.1% (up from -30.4% in Q4)
• State & Local: +1.6% (up from +1.5% in Q4), driven by state & local consumption expenditures (+1.3%), contributing 0.12% to GDP

 

Trade:

Net exports subtracted 1.3% from GDP growth in Q1, largely reflecting a surge in imports tied to strong demand for AI-related computer equipment and semiconductors.

• Exports: +12.9% following -3.2% in Q4, contributing 1.32% to GDP
• Imports: -21.4% following +1.0% in Q4, subtracting 2.62% from GDP

 

Final Sales to Private Domestic Purchasers:

Excluding inventories, trade, government spending and other volatile categories, final sales to private domestic purchasers—a key measure of underlying private‑sector demand—rose 2.5% in Q1, accelerating from 1.8% in Q4. This improvement reflects stronger momentum in both household and business spending despite ongoing inflationary and geopolitical headwinds.

 

PCE Price Index & Personal Income and Outlays – March Update: 

The BEA released its March report on the PCE price index, personal income, and personal spending:

 

PCE Price Index

In March, the headline PCE price index rose 0.7% month over month, up from a 0.4% increase in February, matching market expectations and marking the largest monthly gain since June 2022. The increase was driven primarily by higher gasoline and other motor fuel prices (+21.5%), which accounted for roughly 62% (or about 0.4 percentage points) of the 0.7% monthly increase.

 

Within goods, durable goods prices rose 0.4% month over month, led by increases in personal computers and peripheral equipment (+1.5%), computer software and accessories (+4.0%), tools, hardware and supplies (+1.4%), musical instruments (+1.2%), and tires (+0.9%). Nondurable goods prices increased sharply, driven mainly by higher gasoline and other energy goods (+20.9%), alongside gains in clothing and footwear (+1.0%).

 

Services prices rose 0.3% month over month in March, reflecting broad‑based increases across categories. Notable contributors included airfares (+1.8%), motor vehicle maintenance and repair (+1.3%), and household maintenance (+1.7%). Housing‑related shelter prices increased 0.3%, accelerating from a 0.2% gain in February. Food prices declined 0.1% during the month, though combined food and energy prices surged 3.8% month over month, up sharply from a 0.4% increase in February.

 

On a year‑over‑year basis, headline PCE inflation rose to 3.5% in March from 2.8% in February, matching market expectations and representing the fastest annual increase since May 2023. The increase reflected higher prices for both goods, which rose 3.8% and accounted for roughly two‑thirds of the annual gain, and services, which increased 3.4% and contributed the remainder. Over the same period, food prices rose 1.7%, while energy prices surged 22.0%. Combined food and energy inflation rose 5.9% year over year, up significantly from 1.5% in February.

 

Core PCE inflation, which excludes food and energy and is the Federal Reserve’s preferred inflation measure, increased 0.3% month over month in March, down from 0.4% in February and in line with market expectations. On a year‑over‑year basis, core PCE rose to 3.2% from 3.0% in February, matching expectations and signaling persistent underlying inflationary pressure despite recent moderation in monthly core readings.

 

Personal Income

Personal income increased 0.6% month over month in March, accelerating from a flat reading in February, exceeding market expectations of 0.3%, and marking the strongest monthly gain since July 2025. The $149.2 billion increase was driven primarily by higher private wages and salaries (+$52.2 billion; +0.5%), a sharp rise in farm proprietors’ income reflecting payments from the Farmer Bridge Assistance Program (+$60.2 billion; +96.2%), and gains in personal dividend income (+$14.9 billion; +0.7%). These increases were partially offset by a decline in other government social benefits, driven by a reduction in estimated Affordable Care Act enrollments (‑$16.1 billion; ‑2.5%). On a year‑over‑year basis, personal income rose 3.7%, down from 3.9% in February and continuing a gradual deceleration from late‑2025 highs.

 

Disposable personal income—a key support for consumer spending—also rose 0.6% month over month in March, rebounding from flat growth in February and representing the strongest increase since July 2025. On a year‑over‑year basis, disposable income increased 4.0%, broadly in line with recent months but below levels seen in mid‑2025. Real disposable personal income, adjusted for inflation, declined 0.1% in March after falling 0.4% in February, reflecting a renewed loss of purchasing power amid elevated inflation despite strong nominal income growth. On a year‑over‑year basis, real disposable income rose just 0.4%, the slowest pace since December 2022 and down from 1.2% in February, signaling a continued erosion in household purchasing power.

 

Personal saving declined further in March, with saving falling to $857.3 billion from $913.4 billion in February. As a result, the personal saving rate dropped to 3.6%, the lowest level since October 2022, declining by a cumulative 0.9 percentage points over the past two months. The decline reflects consumer spending outpacing income growth, alongside higher inflation—particularly elevated gasoline prices—forcing households to draw down savings to maintain living standards.

 

Personal Spending 

Personal spending rose 0.9% month over month in March, accelerating from 0.6% in February and matching market expectations. The increase was driven by a sharp 21.8% rise in gasoline and other motor fuel prices, which accounted for roughly 0.4 percentage points of the 0.9% monthly gain. Excluding spending on nondurable goods including gasoline, spending on durable goods increased 1.4%, led by strong gains in new motor vehicles (+4.2%), furniture and furnishings (+1.2%), personal computers and peripheral equipment (+1.1%), and computer software and accessories (+1.1%).

 

Overall spending on goods rose 2.0% month over month in March, up from 1.3% in February, contributing approximately 0.62 percentage points to the monthly increase in total spending. Spending on services increased 0.4%, up from 0.3% in February, driven primarily by higher outlays on transportation services (+0.9%), financial services (+1.1%), and healthcare services (+0.6%).

 

On a year‑over‑year basis, consumer spending increased 5.7% in March, slightly above the 5.6% pace in February. On an inflation‑adjusted basis, real consumer spending rose 0.2% month over month, down from 0.3% in February, while year‑over‑year growth slowed to 2.1% from 2.7%, reflecting the dampening impact of elevated inflation on real spending momentum.

 

Weekly Jobless Claims – Week Ending April 25:

The Labor Department reported that initial jobless claims fell by 26,000 to 189,000 for the week ending April 25, down sharply from a revised 215,000 the prior week, below market expectations of 212,000, and the lowest level since 1969. Initial claims remained meaningfully below year‑ago levels for the eleventh consecutive week. The four‑week moving average declined by 3,500 to 207,500, signaling that the labor market continues to operate in a low‑firing environment and that, to date, the Iran war and recent job‑cut announcements have not translated into a material increase in layoffs.

 

Continuing claims, which reflect the number of individuals receiving unemployment benefits, declined by 23,000 to 1.785 million for the week ending April 18, down from a revised 1.808 million, below market expectations, and the lowest level in two years. The insured unemployment rate remained unchanged at 1.2%. The four‑week moving average for continuing claims fell by 11,750 to 1.797 million, reinforcing signals of a generally stable labor market.

 

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WEEKLY MARKET ANALYSIS:

Equity Market

Equity markets posted a strong winning week, with the S&P 500 and Nasdaq advancing to fresh all‑time record highs. Gains were driven primarily by strong big‑tech earnings, continued optimism around artificial intelligence, and resilient economic data, including GDP and the April Manufacturing PMI. Solid quarterly earnings supported sentiment, with roughly 88% of reporting companies exceeding expectations.

 

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: +1.12% (weekly) & +8.06% (YTD), closing at 25,114
• S&P 500: +0.91% (weekly) & +5.62% (YTD), ending at 7,230
• Dow Jones Industrial Average: +0.55% (weekly) & +2.99% (YTD), closing at 49,499
• Russell 2000: +0.93% (weekly) & +13.33% (YTD), ending at 2,813

 

Oil Market

For the week ending May 1, 2026, crude oil prices posted another volatile performance. Prices surged early in the week, with Brent crude reaching a four‑year high above $126 per barrel on Thursday, driven by escalating geopolitical tensions stemming from the U.S. naval blockade and Iran’s continued closure of the Strait of Hormuz. Prices later pulled back modestly amid profit‑taking and tentative signs of potential de‑escalation following reports of a possible diplomatic proposal from Iran. Overall, Brent crude rose $2.64, or 2.50%, for the week, increasing from $105.53 to $108.17 per barrel, while West Texas Intermediate (WTI) gained $7.54, or 7.99%, rising from $94.40 to $101.94 per barrel.

 

U.S. average gasoline prices tracked by AAA increased by $0.37 per gallon, or 9.21%, rising from $4.059 to $4.433. Since the onset of the Middle East conflict in late February 2026, gasoline prices have climbed $1.449 per gallon, or 48.56%, from $2.984.

 

According to the Department of Energy’s weekly gasoline and diesel fuel update for the week ending April 27, the average price for regular gasoline in California increased by $0.137 per gallon, or 2.43%, from $5.648 to $5.785. California gasoline prices remain $1.31 per gallon, or 29.27%, higher than at the start of the Iran war, when prices averaged $4.475 per gallon.

 

Treasury Market

Like the prior week, Treasury yields rose across nearly all maturities, with the most pronounced increases concentrated in the belly of the curve between the 2‑year and 7‑year tenors. The move was driven by “higher‑for‑longer” rate expectations reinforced by the April FOMC meeting, alongside renewed inflation concerns stemming from the latest inflation data releases.

 

Key Treasury Yield Movements:

• 2-year yield: 3.88% (+0.10%)
• 5-year yield: 4.02% (+0.10%)
• 10-year yield: 4.39% (+0.08%)

 

Rate Cut Expectations

After the April FOMC meeting delivered a hawkish tone—signaling that near‑term rate cuts were unlikely amid ongoing inflation concerns—overall market expectations remained largely unchanged from the prior week. Investors continued to price in no Federal Reserve rate cuts in either 2026 or 2027. However, whereas just a week earlier markets had briefly assigned roughly a 50/50 probability to a rate cut in June or July 2027, those expectations faded following the meeting, with markets instead pricing in only a low probability of rate hikes in 2027.

 

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NEXT WEEK’S ECONOMIC CALENDAR:

Key scheduled releases include:

• 5/5 (Tuesday)
  • ISM Services Index for April
  • JOLTS Job Openings for March
• 5/7 (Thursday)
  • Challenger Job Cuts for April
  • Weekly Jobless Claims and Continuing Claims
  • Consumer Credit for March
  • Nonfarm Productivity & Unit Labor Costs for Q1
• 5/8 (Friday)
  • Employment Situation for April

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For a visual representation of this week’s economic review, you can view or download the slide deck here: 05.01.2026 CBC Weekly Economic Update Presentation Slides

Mark Yoon, CFA CPA

EVP & CFO of Commercial Bank of California

 

Thomas McCullough

EVP of Commercial Bank of California

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All content available on this material is general in nature, not directed or tailored to any particular person, and is for informational purposes only. Any of its content is not offered as investment advice and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. The information contained herein reflects the opinions and projections of Commercial Bank of California (CBC) as of the date hereof, which are subject to change without notice at any time. CBC does not represent that any opinion or projection will be realized. The information contained herein has been obtained from sources considered reliable, but neither CBC nor any of its advisors, officers, directors, or affiliates represents that the information presented on this material is accurate, current, or complete, and such information is subject to change without notice.