Update for Week 06 of 2026

Date: February 7, 2026 The first full week of February 2026 has solidified a narrative of “grinding normalization.” After the volatility of the mid-2020s, the U.S. and global economies are settling into a regime characterized by stubborn but manageable inflation, a labor market that has finally lost its post-pandemic “fever,” and a housing sector that is beginning to thaw under the weight of slightly lower interest rates. The overarching theme of the week is the “Last Mile” of the inflation fight—a period where the easy wins are gone, and the Federal Reserve must balance the risk of a cooling economy against the desire to hit a precise 2% target. Globally, the story is one of divergence: the U.S. continues to exhibit a “resilient exceptionalism,” while the Eurozone grapples with structural stagnation and China navigates a precarious transition away from its old property-driven growth model.

1. Inflation

The inflation story this week is no longer about “shocks” but about “stickiness.” We are seeing a clear bifurcation between goods and services. While the supply chain disruptions of years past are a distant memory, the “service-led” inflation—driven by insurance costs, healthcare, and professional services—remains the primary hurdle for central bankers. The “so what” of this data is critical: it suggests that while the era of 9% inflation is over, the era of “easy 2%” is also likely behind us. We are entering a period of “higher-for-longer” price floors.

• Headline CPI/PCE: The January CPI data released this week showed headline inflation at 2.5% year-over-year. While down from the 2025 peaks, the “Core” reading remains stubbornly at 2.8%, driven by shelter and motor vehicle insurance.
• Energy Prices: Brent Crude hovered near $78/barrel this week. Despite ongoing geopolitical tensions in the Middle East, high production levels from non-OPEC+ nations (led by the U.S. and Brazil) have acted as a ceiling on prices, preventing an energy-led inflationary spike.
• Food Prices: Food-at-home indices rose a modest 0.1% this month. The narrative here has shifted from “supply shocks” to “margin compression” as retailers find that consumers are finally pushing back against price hikes, opting for private-label brands. Quote: “The easy victories in the war on inflation are in the rearview mirror. We are now in the ‘structural’ phase, where demographics and the green energy transition provide a persistent tailwind to prices that traditional monetary policy struggles to reach.” - Dr. Elena Vance, Chief Economist, Global Macro Insights, February 4, 2026

2. Employment

The labor market is currently in a state of “gentle cooling.” The frantic hiring sprees of 2023 and 2024 have been replaced by “surgical hiring.” Companies are no longer hoarding labor; instead, they are optimizing. The “why” behind this shift is a combination of increased AI integration in white-collar sectors and a general exhaustion of corporate budgets. However, we are not seeing a spike in layoffs, but rather a “hiring freeze by stealth,” where vacant positions simply go unfilled.

• Unemployment Rate: Held steady at 4.2% this week. This is widely considered the “Goldilocks” zone—high enough to dampen wage-push inflation, but low enough to support robust consumer spending.
• Job Openings (JOLTS): Openings fell to 8.1 million, the lowest level in 18 months. The ratio of job openings to unemployed workers is now 1.1 to 1, effectively returning to 2019 levels and signaling that the “Great Resignation” power dynamic has fully shifted back to employers.
• Wage Growth: Average hourly earnings grew at 3.7% year-over-year. Crucially, this is now outpacing inflation, meaning real purchasing power is growing, which explains why consumer spending has not collapsed despite higher interest rates. Quote: “We are seeing a ’re-balancing’ of the scales. The labor market isn’t breaking; it’s breathing. The leverage has moved from the breakroom back to the boardroom, but the lack of mass layoffs suggests a soft landing remains the base case.” - Marcus Thorne, Head of Labor Strategy, Workforce Dynamics, February 5, 2026

3. Housing Market

Housing remains the most distorted sector of the U.S. economy. This week’s data suggests a “thaw” is beginning as mortgage rates have stabilized below their 2024 peaks. However, the “lock-in effect”—where homeowners refuse to sell because they hold 3% mortgages—continues to starve the market of inventory. The “so what” is a persistent affordability crisis that is reshaping American demographics, forcing younger buyers into the rental market or toward “secondary” cities in the Midwest and South.

• Mortgage Rates: The 30-year fixed rate averaged 6.25% this week. While high by 2010s standards, it is a significant relief from the 7.5%+ levels seen previously, leading to a 5% week-over-week increase in mortgage applications.
• Home Sales: Existing home sales ticked up 1.2%, but remain at historically low volumes. The market is currently dominated by “must-move” buyers (relocations, divorces, deaths) rather than discretionary movers.
• Construction/Starts: Housing starts for single-family homes rose 2% this month. Homebuilders are the primary beneficiaries of the low inventory of existing homes, as they are the only ones able to offer “buy-down” incentives on rates to attract buyers. Quote: “The housing market is a coiled spring. There is immense pent-up demand, but until the ‘rate gap’ between current mortgages and new ones narrows further, we are looking at a market that moves in inches, not miles.” - Sarah Jenkins, Senior Analyst, National Real Estate Trust, February 6, 2026

4. GDP & Economic Growth

The U.S. economy continues to defy the “recession-is-imminent” chorus. GDP growth is being driven by a combination of resilient consumer services spending and a massive wave of federal investment in domestic manufacturing (semiconductors and green tech) that began in 2022 and is now hitting the “construction” phase. Globally, the picture is dimmer; Germany remains in a technical recession, and Japan’s consumption is flagging.

• GDP Estimates: The Atlanta Fed’s GDPNow tracker for Q1 2026 moved to 2.1% this week. This “above-trend” growth is surprising analysts who expected a slowdown by now.
• Manufacturing/Services PMIs: The ISM Services PMI came in at 53.4, indicating steady expansion. Manufacturing, however, remains in a slight contraction at 49.2, as high borrowing costs continue to weigh on capital-intensive industrial investment.
• Consumer Confidence: The University of Michigan sentiment index rose to 78.5. Consumers are feeling better not because prices are falling, but because they are stable, and the fear of job loss has dissipated. Quote: “The U.S. consumer is the ‘Atlas’ of the global economy. As long as the labor market holds and real wages grow, the U.S. can act as a buffer against the stagnation we are seeing in Europe and the structural slowdown in China.” - Julian Kwak, Chief Strategist, Pacific Rim Macro, February 3, 2026

5. Monetary Policy

The Federal Reserve is currently in a “watchful waiting” period. Having cut rates twice in late 2025 to move away from “restrictive” territory, the FOMC is now searching for the “neutral rate”—the interest rate that neither stimulates nor restricts growth. The narrative this week from Fed officials suggests they are in no rush to cut further, fearing that a premature easing could reignite the housing market and push inflation back toward 4%.

• Interest Rates: The Federal Funds Rate remains at a range of 4.25% - 4.50%.
• Fed Speak/Guidance: In a speech in Chicago this Wednesday, the Fed Vice Chair noted that “the path to 2% is not a straight line” and emphasized that the “totality of data” does not yet justify another cut in the first half of 2026.
• Market Expectations: Futures markets are currently pricing in a 60% chance of a 25-basis point cut in September 2026, a significant push-back from earlier expectations of a March cut. Quote: “The Fed has successfully transitioned from ‘inflation fighter’ to ‘risk manager.’ Their goal now is to avoid the mistakes of the 1970s—cutting too early and allowing inflation to become entrenched in the psyche of the American consumer.” - David Solomon (Simulated), Senior Policy Contributor, Financial Times, February 5, 2026

Conclusion

The second week of February 2026 leaves us with an economy that is remarkably durable but fundamentally changed. The “easy money” era is a memory, replaced by a “cost-of-capital” era where businesses must be profitable and consumers must be discerning. The primary risk for the coming weeks remains the geopolitical landscape—specifically trade tensions in East Asia and energy volatility in the Middle East—which could easily disrupt the delicate “disinflationary” path the Fed is currently walking. For now, the “Soft Landing” has been achieved, but the plane is still taxiing on a very narrow runway. Expect markets to remain sensitive to any data point that suggests the “Last Mile” of inflation is becoming a “Last Marathon.”