The week was marked by unexpected developments in the Middle East and the beginning of significant changes at the Fed. On Tuesday, the United Arab Emirates (UAE) announced it was leaving OPEC for unspecified reasons, effective today. The UAE is the third largest oil producer in OPEC behind Saudi Arabia and Iraq. Since the war began, it has been subjected to missile attacks from fellow OPEC member Iran. Though no specific reason was provided, the energy ministry said the decision was based on the UAE's national interest following a comprehensive review of its production policy and capacity. The ultimate effect of this action will not be known for a while, but Brent crude reached a new peak of $126/barrel this week.
The FOMC left its benchmark rate unchanged at the conclusion of this week’s meeting after an unusual 8-4 vote. As he has since his appointment in September 2025, Stephen Miran dissented in favor of a cut, while the other three "no" votes came from Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas, who each supported the decision to hold rates steady but "did not support the inclusion of an easing bias in the statement at this time." The last time we saw four dissents was 1992. Outgoing Fed Chair Jerome Powell also noted he will stay on the Board of Governors for an indefinite period until the DOJ's investigation into the Fed's renovations "is well and truly over with transparency and finality.”
The Senate Banking Committee confirmed Kevin Warsh’s nomination to succeed Powell as Fed Chair. Republican Thom Tillis had previously held up the nomination process due the DOJ’s potential indictment of Fed Chair Powell over renovations at the Fed’s headquarters. The matter has now resolved itself to Tillis’s satisfaction. The nomination will now move to the full Senate for a vote to confirm Warsh as the next Fed Chair.
GDP rose 2% in the first estimate for Q1 2026 fueled by business investment and solid consumer demand. Consumer spending outperformed expectations with a 1.36% increase, while business outlays on structures and equipment rose 10.4%, the most in three years as businesses made more rapid investments into AI infrastructure. The Fed's preferred inflation measure, CORE PCE, rose 0.7% for March, (the most since 2022) and 3.2% YoY, indicating we're still a long way from the FOMC's 2% target.
As of March 31, it is reported the U.S. national debt now exceeds 100% of GDP, well on its way to breaking the record set after WWII. Publicly held debt was measured at $31.265 trillion while GDP for 2025 was $31.216 trillion, for a ratio of 100.2% compared with 99.5% at the end of the 2025 fiscal year on September 30. The government is effectively spending $1.33 for every dollar it collects in revenue for a projected budget deficit of $1.9 trillion this year. Economists use debt-to-GDP to measure how much a country's borrowing weighs on the economy, with higher levels of debt consuming resources that could be used elsewhere. There is no magic number or fiscal cliff related to the measure but the cushion to borrow isn't unlimited and could lead to higher interest rates and inflation.
KEY INDICATORS THIS WEEK
Jobless claims – 189,000 last week, the lowest level since 1969.
Next week – Jobs week!!