GOOD MORNING. | | THE LEAD | Two pieces of government data came out this morning, and together they paint one of the harder pictures retirees have faced in several years. | First, the Bureau of Economic Analysis released its second estimate for how fast the economy grew in the final three months of 2025. The number: just 0.7% annual rate. That is down sharply from the first estimate of 1.4%, and well below where the economy was running just a quarter earlier. The downward revision reflected weaker consumer spending, softer government outlays, and a smaller-than-expected drop in imports. Economists had been expecting a figure closer to 1.5%. Instead, growth in the fourth quarter of last year was barely above flat. | Second, the same agency released the January reading on the PCE price index. PCE stands for Personal Consumption Expenditures, and it is the Federal Reserve's preferred way of measuring inflation. The headline number came in at 2.8% above where prices were a year ago. The core version, which strips out food and energy costs, rose 3.1% from a year ago and climbed 0.4% from just the month before. That monthly pace is fast. The Fed's target for annual inflation is 2%. Core prices are running well above it. | Introducing "Elon Musk's Day-One Retirement Plan" | | What if you could compress a lifetime of wealth-building… | Ten… twenty… even thirty years… | Into a single 24-hour window? | It sounds absurd. | But Elon Musk is about to make it a reality with something I'm calling… | "Day-One Retirement Plan." Click here to see the details. | Put those two numbers together and you get the combination that worries economic planners most: slow growth and rising prices at the same time. Economists call this stagflation. It is difficult to manage because the usual tools work against each other. When growth slows, the typical response is to cut interest rates to give the economy a lift. But when inflation is running at 3.1%, cutting rates risks making prices climb even faster. The Federal Reserve ends up stuck between two bad options. | The Iran conflict is making everything harder. On February 28, the United States and Israel launched airstrikes on Iran in an operation called "Epic Fury." Since then, Iran's newly appointed Supreme Leader Mojtaba Khamenei has said the Strait of Hormuz should remain closed as pressure on the West. The Strait is a narrow waterway through which roughly 20% of the world's oil passes. With it effectively shut, oil prices have surged. WTI crude settled Thursday at $95.73 a barrel, a single-day gain of nearly 10%. Brent crude, the international benchmark, closed above $100 for the first time since August 2022. | Oil prices did ease slightly Friday, which is why stocks recovered a bit from Thursday's sharp decline. But the situation in the Middle East is far from settled. |
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| The Federal Reserve meets Tuesday and Wednesday of next week. No rate change is expected. What matters is the updated guidance the Fed releases on where rates are headed. Before today's data, markets were pricing in one rate cut later in 2026, probably in September. After this morning's core PCE reading, markets have pushed back expectations even further. | For you, here is the practical takeaway. Your short-term cash, CDs, and money market funds are still earning meaningful yields precisely because the Fed is holding rates steady. That is working in your favor. The risk is that at 3.1% annual core inflation, the things you buy every day are getting more expensive faster than many fixed income investments can offset. Make sure your income sources are keeping pace. | | | THE NUMBER THAT MATTERS | 3.1 % | PCE Price Index Increase | That is how much the core PCE price index rose from January 2025 to January 2026, according to data released this morning by the Bureau of Economic Analysis. Core PCE strips out food and energy prices, which swing around frequently. What remains is a cleaner look at the underlying pace of inflation across the broader economy. The Federal Reserve targets 2% annual inflation. At 3.1%, prices are rising at more than one and a half times that target. This is not a new problem, but it is getting worse rather than better. Core PCE had been running closer to 3% in recent months. The January reading of 3.1% moves in the wrong direction. With oil prices now surging due to the Iran war, February and March readings are likely to be even higher. For retirees on fixed budgets, a sustained gap between what you earn and what things cost is the single biggest long-term threat to financial security. |
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| | | WHAT WE'RE WATCHING THIS WEEK | | INFLATION DATA | ENERGY: Oil Eases Slightly but the Strait of Hormuz Remains Closed | WTI crude pulled back modestly Friday, settling near $94.79 after Thursday's nearly 10% jump to $95.73. Brent crude had crossed $100 a barrel on Thursday for the first time since August 2022. Iran's Supreme Leader Mojtaba Khamenei pledged this week to keep the Strait of Hormuz closed as leverage against the United States and its allies. Energy Secretary Chris Wright told CNBC on Thursday that the U.S. Navy is not yet ready to escort oil tankers through the strait, adding that a Navy escort operation is possible by the end of the month. The International Energy Agency has authorized a release of more than 400 million barrels from member nations' emergency stockpiles to soften the price impact. Higher oil prices flow directly into what you pay at the gas station, for heating fuel, and for goods that must be transported. This situation bears watching closely in the weeks ahead. | | SMART MONEY SIGNAL | FEDERAL RESERVE: The Fed Meets Next Week With No Easy Answers | The Federal Open Market Committee meets Tuesday and Wednesday of next week. The Fed is widely expected to hold interest rates steady at their current target range. What will matter most is the updated "dot plot," which shows where each Fed official expects interest rates to go over the next two years. Before this morning's data, markets were pricing in one rate cut this year, most likely in September. With core PCE coming in at 3.1% and oil prices elevated, that expectation may slip further. If the dot plot shows no cuts at all in 2026, or hints at the possibility of a rate increase, bond prices could fall and stock valuations could face more pressure. Retirees holding short-term CDs and money market accounts benefit from rates staying elevated. Those holding long-term bonds could see the value of those holdings decline if yields continue to rise. | | WORTH KNOWING | CONSUMER CONFIDENCE: Americans Are the Most Pessimistic in Over a Year | The University of Michigan released its consumer sentiment survey for March this morning. The headline reading came in at 55.5, down 1.9% from February. Survey Director Joanne Hsu noted that interviews taken before the U.S. and Israel struck Iran showed improvement from last month, but readings taken during the nine days following the military action erased all of those gains. Americans now expect prices to be 3.4% higher one year from now, unchanged from February. The five-year inflation expectation nudged slightly lower to 3.2%. Consumer confidence matters because it often leads spending decisions, and consumer spending drives roughly 70% of the U.S. economy. When people feel uncertain about the future, they pull back on purchases. That pullback can compound the slow-growth picture already showing up in the GDP data. | | | | | This morning's reports confirmed the most difficult economic combination for retirees: prices are still rising well above the Fed's target while economic growth has slowed sharply. The ongoing Iran war is pushing oil higher, which will keep inflation pressure elevated for months to come. Your short-term, income-focused savings are holding up thanks to elevated interest rates, but purchasing power is being eroded at a pace that warrants close attention. Stay calm, stay focused on income quality, and avoid making large portfolio moves in response to headlines that may shift again next week. |
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