US Economic Weekly In the interest of time

US Economic Weekly In the interest of time

A compounding problem 04 September 2026

Crossing the $40tn debt threshold was likely not a catalyst for the recent rise in yields. Economics However, a renewed focus on deficits is warranted given the rise in rates. The fiscal United States challenge is increasingly about interest expense, which now exceeds spending on both US Economics defense and Medicare and is still rising. The biggest long-run risk is a feedback loop in BofAS which higher rates raise deficits, larger deficits increase Treasury supply, and higher Aditya Bhave term premiums push borrowing costs even higher. US Economist BofAS The week ahead: All eyes on inflation

All eyes will be on the Aug inflation data next week (PPI on Thur and CPI on Fri, preview Stephen Juneau US Economist below). We also get NY Fed inflation expectations (Tue), existing home sales (Thur), BofAS University of Michigan consumer sentiment (Fri) and federal budget balance (Fri). There is no Fedspeak since the Fed is in blackout before the Sep FOMC meeting. Shruti Mishra US Economist Data preview: Inflation to keep Sept hike on track BofAS Next week's inflation data could be the decisive factor for a September hike. We expect the report to be firm enough for the FOMC to follow through. Specifically, we forecast See Team Page for List of Analysts core CPI to rise a trend-like 0.22% m/m in August and core PCE to increase 0.24% m/m. If correct, core PCE would be running at a 2.9% annualized pace and the year-over-year Glossary rate would edge up to 3.4%, both well above levels consistent with the Fed's 2% target. CPI: Consumer Price Index In our view, that should be enough to convince Chair Warsh that underlying inflation trends have not improved sufficiently and that higher rates are warranted. PMI: Purchasing Managers’ Index

PPI: Producer Price Index Data review: Low churn, no cracks The July JOLTS report showed a slight decline in hiring. This is in line with soft summer NFP: Nonfarm payrolls payroll trends reflected in our Aug NFP forecast, ADP, and Revelio data. Hiring remains LFPR: Labor force participation rate subdued, but job growth is still running above breakeven. Encouragingly, layoffs remain low, consistent with benign jobless claims and fewer Challenger job cut announcements. PCE: Personal Consumption Expenditures Meanwhile, the vacancies-to-unemployed ratio, a key measure of labor market slack improved in July and has stayed above 1.0 for four consecutive months. Bottom line: FOMC: Federal Open Markt Committee despite the soft summer jobs data, labor market conditions remain broadly stable. GDP: Gross Domestic Product

Fedspeak review: Waller raises the bar for a Sep hike SF: Seasonal Factor Relative to Warsh, Waller struck a notably more dovish tone, emphasizing a state- contingent reaction function: with the labor market remaining stable, continued progress SA: Seasonally Adjusted

on inflation would argue for holding rates steady, while a deterioration in inflation would SEP: Summary of Economic Projections warrant a hike. His characterization of a "reasonable" inflation outcome implied a roughly 0.30% m/m print on August core PCE, suggesting a relatively high bar for tightening. MA: Moving Average Williams was even more dovish, offering little indication that a September hike is HH: Household necessary, consistent with his long-standing view that the neutral rate remains relatively low. The key question is whether that assessment is shared by Board members such as U-rate: Unemployment Rate Powell, Jefferson, Cook, and Barr. JOLTS: Job Openings and Labor Turnover Survey

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In the interest of time Stephen Juneau US Economist BofAS

• Crossing the $40tn debt threshold was likely not a catalyst for the recent rise in yields. However, a renewed focus on deficits is warranted…