The US Economy, Week of Oct 26-30, 2026: Where the Cycle Stands

I track the US economy each week through the indicators that FRED publishes: inflation, interest rates and the yield curve, jobs and layoffs, credit spreads, mortgage rates, consumer sentiment and GDP. FRED is the data service of the St. Louis Fed. Each chart covers the last three years of data, one metric per chart.

Glossary: what the terms mean

• Inflation (CPI): How much more things cost than a year ago. The Consumer Price Index measures inflation with a basket of groceries, gas, rent and everyday goods.
• Core inflation: The same measure with food and fuel removed. Food and fuel prices change a lot from month to month, so core shows the slower, stickier trend.
• 3-month annualized pace: Inflation over just the last three months, converted to a yearly rate. The 3-month pace changes direction before the year-over-year number does, so the 3-month pace gives an early warning.
• Fed rate (fed funds): The short-term interest rate the Federal Reserve sets. Lenders set mortgage, car loan and credit card rates from the Fed rate. A higher Fed rate slows the economy. A lower Fed rate stimulates the economy.
• Treasury yield (2-year, 10-year): The interest rate the US government pays to borrow for 2 or 10 years. The 2-year tracks where markets expect the Fed rate to go. The 10-year reflects longer-run growth and inflation.
• Basis point (bp): One hundredth of a percentage point. 50bp = 0.50%.
• Yield curve: The 10-year rate minus the 2-year rate. The yield curve is normally positive, because a longer loan pays more.
• Inverted curve: A yield curve below zero. Investors accept less to lend for 10 years than for 2, which they only do when they expect a slowdown. An inverted curve came before every US recession in the last 50 years, usually about a year early, and an inverted curve also gave false alarms.
• Unemployment rate: The share of people who want a job, search for one, and don't have one.
• Payrolls (jobs added): The net number of jobs employers added in a month.
• Participation rate: The share of working-age adults who have a job or actively search for one. If people quit the job search, the unemployment rate can fall even though nobody found a job. The participation rate shows when people quit the job search.
• Sahm rule: A recession alarm that FRED publishes as the Sahm Rule Recession Indicator. When the 3-month average unemployment rate rises half a point above its low of the past year, the US economy is almost always already in a recession.
• Jobless claims: The number of people who file for unemployment benefits for the first time each week. Jobless claims are the fastest weekly data on layoffs.
• High-yield credit spread: The extra interest risky companies pay to borrow compared with the government. The posts use the ICE BofA US High Yield spread. A low spread means lenders see little risk. A sharp rise in the spread means lenders see more risk.
• 30-year mortgage rate: The interest rate on a typical home loan.
• Consumer sentiment: A monthly University of Michigan survey of how people feel about their finances and the economy.
• GDP growth: How fast the total output of the economy grows, after inflation, at a yearly pace. The Bureau of Economic Analysis reports GDP growth every quarter and revises the number later.
• WTI oil: The benchmark price of a barrel of US crude oil. The WTI price moves gas prices and CPI inflation quickly.
• Recession: A broad, sustained decline in economic activity: lower output, higher unemployment, weaker spending.
• Soft landing: The Fed lowers inflation, and no recession follows.
• Base, bear and bull case: The most likely path, the worse path, and the better path over the next year, each with a rough probability.

This week's read

AI-generated analysis

A large language model (LLM) generates the analysis below from the Federal Reserve data in the charts. The analysis is not financial advice.

The call this week is MID/LATE-CYCLE, with caution. The economy is still steady and mid-to-late in the cycle. Inflation rose again in September, mainly because of oil, and the Fed held its upper target rate at 4.00%. Oil fell from about $110 last week to about $103. Jobs, jobless claims and credit show no recession trigger.

Inflation

Headline and core inflation, and the recent 3-month pace.

Oil, the input that moves headline inflation fastest.

No new monthly inflation data arrived this week, so the September readings are the latest. Headline CPI is 3.7% (3.5% three months ago, 3.0% a year ago) and the 3-month annualized rate is 4.6% (2.8% three months ago). Core CPI is steadier at 2.6%, the same as three months ago and down from 3.0% a year ago.

Energy is the driver. Oil averaged ~$97 in September. WTI crude closed at $109.72 on Oct 23 and fell to ~$103 this week. Oil is still above its September average, so the next headline CPI reading will likely not cool.

Rates and the Fed

The Fed rate against the 2- and 10-year bond.

The yield curve (10-year minus 2-year).

The 30-year mortgage rate, where higher rates reach households.

Rates are the main topic this week. The Fed held its upper target rate at 4.00% this week (3.75% earlier this year). The September averages were 4.88% for the 2-year yield (up 0.74pp in three months) and 5.29% for the 10-year yield (up 0.85pp). The latest daily yields (Oct 29) eased a little, to 4.61% and 4.98%. The gap between the 10-year and 2-year yields is +41bp on the September average and about +37bp on the latest daily reading, up from +31bp on Oct 23. The curve is not inverted.

The labor market

Unemployment.

Weekly jobless claims, a fast signal from the job market.

The labor market is soft, with no sharp break. Unemployment is 4.2% (the same as three months ago, 4.4% a year ago). Payrolls grew by only +29k in September. Labor force participation is 61.8%, down from 62.3% a year ago. Fewer people in the labor force make the unemployment rate look a little better than it is. The Sahm rule does not trigger, because the 3-month unemployment average (~4.13%) is at its 12-month low.

Forward-looking stress gauges

High-yield credit spreads, which show how much risk lenders see.

Consumer sentiment, which leads spending.

GDP growth, the last of these figures to arrive.

The stress gauges stay calm. Weekly jobless claims were 194k in the latest week (Oct 24), down from 195k the week before and far below the ~260k tripwire. High-yield spreads are ~3.3% on the latest reading, about the same as 3.38% on Oct 23 and up from 2.8% three months ago. The spreads rose slowly over three months, and they are still below the ~4–5% zone that marks financial stress.

Q3 GDP growth was 3.4%. Higher rates and energy prices squeeze the consumer (real disposable income growth fell to 1.0%, and the savings rate is 3.8%). The labor market and credit do not show a downturn.

The next twelve months

The LLM puts rough odds on each case below. The odds are the LLM's judgment.

Base case (~55%): Slow growth / soft landing. Growth stays positive (Q3 GDP 3.4%) and hiring cools slowly. Inflation is the main risk to this case. With oil at ~$103 and the 3-month rate at 4.6%, headline inflation will likely stay firm, and the Fed, at 4.00%, has little room to cut. Low jobless claims and a positive yield curve support this case. A return to 2% inflation depends mostly on a fall in oil prices. The base case rose from ~50% last week because oil fell from about $110 to about $103 and the yield curve widened from +31bp to about +37bp.

Bear case (~30%): Consumer-led / rate-squeeze recession. In this case, higher rates (2-year yield ~4.6–4.9%, 30-year mortgage ~7.0–7.2%), a low 3.8% savings rate and slower real income growth hurt spending more. Hiring slows further from +29k, and unemployment climbs toward 4.6–4.8% until the Sahm rule triggers. The tripwires for this case are jobless claims above ~260k and a new inversion of the yield curve. Neither tripwire is close (claims 194k, curve ~+37–41bp), so this case needs new weakness in the data. Wider credit spreads (2.8% three months ago, ~3.3% now) and a 218k drop in housing starts over three months are the early warning signs. The bear case fell from ~35% last week for the same reasons that the base case rose.

Bull case (~15%): Re-acceleration. In this case, oil falls below ~$90, inflation moves toward 2% again, the Fed stops at 4.00% and later cuts, and cheaper credit revives housing and consumer sentiment (48.0 in October, down from 53.6 a year ago). Oil at ~$103 and a 3-month rate of 4.6% hurt this case today.

What to watch next

These tripwires would change the call:

• Yield curve inversion (10y–2y below 0): the curve is ~+37–41bp now. Inversion is an early recession signal.
• Weekly jobless claims that rise above ~260k and stay there: the latest reading is 194k. A sustained rise is an early sign of layoffs.
• Sahm rule (3-month unemployment average 0.5pp above its 12-month low): the average is ~4.13%, about the same as its low, so there is no gap.
• Oil that stays above ~$95: the latest price is ~$103. Oil is the main near-term swing factor for headline inflation and the Fed.
• High-yield spreads that rise through ~4–5%: spreads are ~3.3% now, about the same as last week, after a slow rise from 2.8% three months ago. A move through that zone would signal the start of financial stress.