I. Macro
The economy's two most important engines of economic growth, consumer spending and business investment, are booming. In Q2-2026 real GDP, consumption expenditures increased 3.3% (saar) and nonresidential fixed investments jumped 8.4%. The headline and core GDP deflators, the most comprehensive measures of economy-wide inflation, rose 4.3% y/y and 3.8% (chart). Fed officials should be turning hawkish.
Recent Q2 earnings reports were upbeat on consumers. Booking Holdings maintained its full-year outlook and reported solid travel demand despite higher airfares and geopolitical turmoil. Disney also delivered better-than-expected results, with strong performance at its parks and experiences business.
Bank of America expects hyperscaler capital expenditures to reach $860 billion this year and approach $1.2 trillion in 2027. The AI buildout has turned into its own stimulus program for the economy. And, of course, the government deficit remains very stimulative.
