Financial News for the Week of July 31st, 2026

Financial markets had plenty to digest this week, with mega-cap tech earnings, the FOMC decision, and the second-quarter GDP. Equities swung sharply as investors weighed technology earnings against renewed scrutiny over AI-related capital spending and China’s progress in AI capabilities and semiconductor manufacturing. Still, stronger-than-expected results from several technology heavyweights helped revive the sentiment toward the end of the week. Oil prices also were in focus, with WTI crude easing relative to last week’s highs, but remained elevated at around US$85 per barrel Friday morning. Against that backdrop, investors have turned their attention to the Fed, where growing concern about inflation and rising doubts over the Committee’s willingness to do what is necessary to restore price stability pushed longer-term Treasury yields sharply higher.

The FOMC meeting was the week’s marquee event, though the main surprise was in the vote and not the policy announcement. Three officials dissented in favor of a 25-basis-point hike, highlighting growing concern within the Committee about inflation risks. The data support that concern. While inflation eased modestly in June, the improvement is unlikely to last if energy prices remain elevated. Core PCE inflation has remained above the Fed’s 2% target for more than five years, and the Fed is still searching for the back of the net. So even as Chair Warsh reiterated that the Committee would not “waver” in its commitment to restoring price stability, financial markets grew uneasy about the Fed’s willingness to raise rates to bring inflation back to target. 30-Year Treasury yields rose sharply following the meeting and remain near a 19-year high (Chart 1).

Despite the market jitters, the incoming data still point to an economy with solid underlying momentum. Real GDP growth slowed to a 1.5% annualized pace in the second quarter from 2.1% previously, but the softer headline largely reflected a surge in imports, with net trade subtracting roughly one percentage point from growth.

Under the hood, the economy’s engine was running considerably hotter than the headline GDP figure suggested, supported by a rebound in consumer spending and robust business investment (Chart 2). Consumer spending rebounded by a solid 3.2% annualized after a weather-affected first quarter. However, spending continued to outpace income, pushing the personal saving rate to its lowest level since mid-2022. With the boost from larger tax refunds fading, consumer resilience will increasingly depend on labor market strength and rising household wealth. Business investment also remained a bright spot. AI-related investment remained robust, but it was no longer the only game in town. Spending on industrial equipment surged 29% annualized in the second quarter, adding to evidence that the current capital spending cycle is becoming more broad-based.

Next week’s ISM surveys and the July employment report will shed further light on the balance of risks to prices and employment. For now, resilient domestic demand and persistent inflation pressures suggest the Fed’s inflation fight is entering overtime, with markets seeking reassurance that policymakers can credibly bring inflation back to target.