Trump's Grand Plan to Put American Workers First May Be Backfiring as U.S.-Born Unemployment Rises and Wage Growth Stalls

  Trump's Grand Plan to Put American Workers First May Be Backfiring as U.S.-Born Unemployment Rises and Wage Growth Stalls

## Introduction: The Promise That Was Supposed to Change Everything

During the 2024 campaign, the message was loud and clear. Donald Trump and J.D. Vance promised that mass deportations and a crackdown on immigration would open up jobs for unemployed U.S. citizens. The theory was disarmingly simple: remove immigrant workers, and native-born Americans would fill those open positions.

It was a compelling pitch. Remove the competition, and American workers would finally get the wages and opportunities they deserved. It was the kind of straightforward, common-sense promise that resonated with millions of voters who felt left behind by decades of globalization.

A few years later, the effects of this policy are now visible in the labor market. And the results are not what anyone expected.

The unemployment rate for U.S.-born workers was **4.0%** in 2024 under the Biden administration. It has risen under Trump. With today's jobs report, the three-month average for 2026 shows the U.S.-born unemployment rate is at **4.3%**. The non-seasonally adjusted average for 2026 is even higher at **4.6%**.

Meanwhile, wage growth has slowed to a five-year low of **3.2%**. And inflation-adjusted wages for most workers have risen by just **0.1%** since Trump's return to office in January 2025—meaning workers aren't actually better off in real terms.

The grand plan to put American workers first appears to be backfiring. Here's why.

---

## The Immigration Policy: When Removing Workers Doesn't Create Jobs

### The Historic Decline in Migration

The numbers are stark. Net international migration has plummeted from a peak of **2.7 million people in 2024** to an estimated **321,000 by mid-2026**. Some analysts, including the Brookings Institution, project the U.S. could see **negative net migration this year**.

The immigrant labor force is shrinking because of White House policy. And ironically, foreign-born unemployment has actually fallen **below** native-born unemployment. Mark Zandi, chief economist at Moody's, noted that foreign-born unemployment dropped below native-born unemployment in October 2025, based on analysis of a 12-month moving average of seasonally unadjusted data.

This is the opposite of what the administration promised. Removing immigrants from the labor force was supposed to reduce unemployment for American workers. Instead, it has created a situation where the foreign-born workers who remain are more likely to be employed than their native-born counterparts.

### The Complex Reality

The rise in native-born unemployment is more complex than a simple supply-and-demand story. A major driver is that **demand for labor has generally fallen**. When U.S.-born workers make up a larger share of the labor force, this cohort is affected more heavily by changes in demand.

But there's another, more uncomfortable factor at play. The careers and wages immigrant workers have been willing to accept aren't viewed the same way by native workers.

In 2025, foreign-born workers were more likely than native-born workers to be employed in sectors like construction, trucking, natural resources, and health and personal care. These are often physically demanding, lower-paying jobs that many native-born workers simply don't want.

"It just goes to show how difficult many of these jobs are," Zandi told Fortune. "Native-born workers would take them, but it would require much, much higher wages … [and that] would make it uneconomic for the businesses to actually produce whatever it is they're doing".

### The Consumer Effect

There's another dimension to this that's often overlooked. Immigrants are not only workers but also **consumers**, which generates demand and helps the economy grow. When immigrant workers are removed from the economy, the demand they generated disappears too.

Immigrants and U.S.-born workers also **complement** each other in the labor market. For example, when immigrant roofers and framers disappear, there is less work available for native-born electricians and plumbers. When child care workers and cleaners are detained or deported, U.S.-born mothers work fewer hours to cover increased care responsibilities at home.

The theory that removing immigrants would simply open up jobs for American workers has proven to be far too simplistic.

---

## The Manufacturing Promise: A "Blue-Collar Bust"

### The Tariff Gamble

President Trump promised that his chaotic, across-the-board tariffs would yield a "manufacturing boom". He claimed foreign companies would "eat" his tariffs and that corporate importers would simply absorb the costs.

Instead, those costs were passed on to consumers, driving up prices for American families and small businesses. Trade policies have cost families an average of **$1,700**, and estimates indicate that American households will end up paying for **95 percent** of the President's tariffs.

### The Jobs That Never Came

The promised manufacturing boom never materialized. Since President Trump's announcement of sweeping tariffs on nearly all trading partners in April 2025, nearly **100,000 manufacturing jobs** have disappeared.

Spending on construction in the manufacturing sector has declined steadily in each month since he took office. In April 2026, private investment in manufacturing construction stood at **$15.2 billion**, a **16 percent decline** from Trump's inauguration. Over the same period, factory employment decreased by **77,000 jobs**.

Even Trump allies are feeling the pinch. Hedge fund billionaire John Paulson, a staunch defender of tariffs, recently announced he will close his brass instrument manufacturing plant in Ohio and move around 150 jobs to China. Whirlpool, another defender of the President's tariffs, has cut nearly 500 U.S. jobs since last year's tariffs.

### The Automation Factor

Even where factories are returning, automation and AI are limiting job gains. The manufacturing sector has been transformed by technology, and the jobs that remain often require different skills than the ones that were lost.

The "golden age" of American manufacturing that Trump promised has become, in the words of critics, a "blue-collar bust". The data simply doesn't support the administration's narrative of a manufacturing renaissance.

---

## The Wage Story: Stagnation in a Time of Inflation

### The Numbers Don't Lie

Wage growth has slowed substantially from its 2023-24 pace. The average hourly wage increased **3.5%** over the year from June 2025 to June 2026. That compares to a rate of over 4.0% in 2023 and 2024.

By July 2026, wage growth had slowed to a five-year low of **3.2%**. But inflation was still running at **3.5%** annually. The result? American workers are once again losing buying power.

In April 2026, consumer prices climbed **3.8%** while average wage growth stayed around 3.6%, causing real earnings to turn negative for the first time since 2022.

### The Real Wage Problem

The White House has insisted that the policy has resulted in "significant real wage growth" in key industries like construction, manufacturing, and transportation. But the broader data tells a different story.

Early career workers are facing particularly harsh conditions. Real earnings in 2026 fell **0.7% below 2020 levels** for early career workers, according to Glassdoor. Despite a rebound in nominal earnings, inflationary pressures have wiped out the gains.

The Federal Reserve Bank of New York has found that as of early 2026, American workers received just **54.1% of national income**. That's down from 65% in 1947, when the federal government first began tracking the data.

### The Bigger Picture

The stagnation in wages is part of a broader trend. The administration's assaults on typical workers' bargaining power and leverage—and its support for corporations with significant market power—are pushing income away from low- and moderate-income families and toward the top.

The Economic Policy Institute has reported that real wages declined **0.3% for low-wage workers in 2025**. U.S. workers are taking home a smaller and smaller share of the economic pie.

---

## The Human Cost: Real People, Real Struggles

### The Frozen Labor Market

Senator Elizabeth Warren has described the current labor market as effectively "frozen". The combination of Trump's illegal war, chaotic trade policy, and cruel immigration policies has created an environment where workers are struggling to find opportunities.

The administration has stripped collective bargaining rights from over 1 million federal workers in what critics call "the largest act of union busting in American history". It has cut overtime pay for millions of workers and illegally fired half of the commissioners of the Equal Employment Opportunity Commission and the Chair of the National Labor Relations Board.

### The Unemployment Reality

The unemployment rate for U.S.-born workers was **4.7% in February 2026**, compared to 4.4% in February 2025. U.S. workers have not reentered the labor market in response to fewer foreign-born workers.

Even as hundreds of thousands of immigrants left the workforce in 2025, according to Census Bureau data, the unemployment rate for native-born Americans was higher in January 2026 than it was the previous year.

### The Forgotten Workers

There's a particularly cruel irony in all of this. The workers who were supposed to benefit from these policies—the native-born Americans struggling to find good jobs—are the ones who are suffering the most.

The construction, manufacturing, and transportation sectors that were supposed to boom are shedding jobs. The wages that were supposed to rise are stagnating. And the unemployment that was supposed to fall is rising.

---

## The Expert Verdict: What Economists Are Saying

### The Zandi Analysis

Mark Zandi, chief economist at Moody's, has offered one of the most comprehensive assessments of the situation. He notes that the immigrant labor force is shrinking because of White House policy. The rise in native-born unemployment is a result of falling labor demand combined with the fact that U.S.-born workers now make up a larger share of the labor force.

But Zandi also highlights the structural mismatch. Immigrant workers have been willing to take on difficult, arduous jobs that native-born workers often reject. "These jobs are typically ones that are very difficult, very arduous," Zandi said.

Native-born workers would take them, but "it would require much, much higher wages". That would make it uneconomic for businesses to operate.

### The EPI Findings

The Economic Policy Institute has been tracking this issue closely. Their analysis shows that claims that mass deportations have helped U.S.-born workers are "simply inconsistent with the data".

Economic research has repeatedly shown that increased immigration enforcement harms everyone in the labor market, including U.S.-born workers. When immigrant workers disappear, the entire economy suffers.

### The CBO Projection

The Congressional Budget Office has projected that inflation will remain high and the labor market will be weaker due to Trump administration policies. The CBO has made clear that the President's tariffs, immigration policy, and the passage of the "Big, Ugly Betrayal" bill will keep inflation high while also slowing employment growth.

### The Zandi Warning

Zandi has warned that these labor market changes could force immigration policy adjustments in the coming years. In the short term, they could bring **stagflationary pressures**: rising prices but sluggish output growth.

The only thing preventing the economy from completely spiraling? Artificial intelligence. That's a fragile lifeline.

---

## The Defense: What the Administration Says

### The White House Response

The White House has not remained silent in the face of this criticism. A spokesperson has insisted that the policy has resulted in "significant real wage growth" in key sectors like construction, manufacturing, and transportation.

The administration has pointed to specific industries where wages have increased. They argue that reducing the labor supply has given workers more bargaining power.

### The Counterargument

But the broader data doesn't support this narrative. The New York Fed report shows that wage growth has been slowing across most industries since 2022. The modest gains in some sectors have been more than offset by losses in others.

Critics argue that the administration is cherry-picking data to support a narrative that doesn't hold up to scrutiny. The overall picture is one of stagnation, not progress.

---

## The Political Fallout: A Broken Promise

### The Campaign Promise

Trump was clear in his pitch to voters. In 2024, he pledged to bring back the American Dream. Removing immigrants "taking jobs from American workers and driving down their wages" was a key part of the plan.

It was a powerful message. It tapped into the frustrations of millions of Americans who felt left behind. It offered a simple solution to a complex problem.

### The Reality Check

A few years later, the effects of this policy are visible in the labor market. And they're not what anyone expected.

The unemployment rate for U.S.-born workers has risen. Wage growth has stalled. Manufacturing jobs have disappeared. And the promised boom has become a bust.

### The Political Cost

The political cost of this failure is still unfolding. But the frustration among workers who were promised a better deal is palpable. The data contradicts the administration's assertion that immigrants leaving the workforce has resulted in more jobs for those born in the United States.

Congressional Democrats have been vocal in their criticism. Senator Warren and Senator Mark Kelly have pressed Trump officials to explain the disappearance of tens of thousands of manufacturing jobs under the Trump administration.

---

## Frequently Asked Questions (FAQs)

### 1. What is the current U.S.-born unemployment rate?

The three-month average for 2026 shows the U.S.-born unemployment rate at **4.3%**. The non-seasonally adjusted average for 2026 is **4.6%**. This represents an increase from 4.0% in 2024.

### 2. How much has immigration declined under the Trump administration?

Net international migration has plummeted from a peak of **2.7 million people in 2024** to an estimated **321,000 by mid-2026**. Some analysts project the U.S. could see **negative net migration** this year.

### 3. Why is foreign-born unemployment lower than native-born unemployment?

The immigrant labor force is shrinking because of White House policy. Foreign-born unemployment is relatively lower as a result. The rise in native-born unemployment is more complex, driven by falling labor demand and a structural mismatch between available jobs and the preferences of native-born workers.

### 4. How many manufacturing jobs have been lost under Trump's tariffs?

Since President Trump's announcement of sweeping tariffs in April 2025, nearly **100,000 manufacturing jobs** have disappeared. Factory employment decreased by **77,000 jobs** over the same period.

### 5. What is happening to wage growth?

Wage growth has slowed to a five-year low of **3.2%**. Inflation-adjusted wages for most workers have risen by just **0.1%** since Trump's return to office in January 2025. Real earnings turned negative for the first time since 2022 in April 2026.

### 6. What do economists say about the immigration policy?

Economists like Mark Zandi of Moody's have noted that the theory behind the policy is being tested: even if native-born Americans face reduced competition for roles, they don't want the jobs anyway. Economic research has repeatedly shown that increased immigration enforcement harms everyone in the labor market, including U.S.-born workers.

### 7. What is the administration's defense?

The White House has insisted that the policy has resulted in "significant real wage growth" in key sectors like construction, manufacturing, and transportation. However, broader data shows that wage growth has been slowing across most industries since 2022.

### 8. What are the risks going forward?

Economists warn that these labor market changes could force immigration policy adjustments in the coming years. In the short term, they could bring stagflationary pressures: rising prices but sluggish output growth. The only thing preventing the economy from completely spiraling is artificial intelligence.

---

## Conclusion: When Good Intentions Go Wrong

President Trump's grand plan to put American workers first was built on a simple premise: remove the competition, and American workers will thrive. It was a promise that resonated with millions of voters who felt left behind by decades of globalization.

But the data tells a different story. U.S.-born unemployment has risen. Wage growth has stalled. Manufacturing jobs have disappeared. And the promised boom has become a bust.

The theory that removing immigrants would simply open up jobs for American workers has proven to be far too simplistic. Immigrants are not just competitors for jobs—they are also consumers, entrepreneurs, and complementary workers who help the economy grow.

The structural mismatch between available jobs and the preferences of native-born workers has proven to be a more significant barrier than the presence of immigrant workers. As Mark Zandi observed, native-born workers would take these jobs, but "it would require much, much higher wages". That would make it uneconomic for businesses to operate.

The administration's tariffs have added another layer of damage. Instead of bringing jobs back to America, they have driven up costs for consumers and led to the loss of nearly 100,000 manufacturing jobs.

The result is an economy that is failing the very workers it was supposed to help. Unemployment is rising for U.S.-born workers. Wages are stagnating in real terms. And the cost of essentials like gas, groceries, and housing remains high.

The grand experiment to put American workers first is backfiring. And the workers who were supposed to benefit are the ones paying the price.

---

## Disclaimer

*This article is for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. All views expressed are based on the analysis of publicly available information, including government data releases, research reports, and media coverage. Economic conditions, unemployment rates, and policy impacts are subject to change. The views of economists and analysts cited in this article are their own and do not necessarily reflect the views of the author. Before making any financial or career decisions based on the content of this article, please consult with qualified professionals who can evaluate your specific situation. The author is not affiliated with the Economic Policy Institute, Moody's, the Bureau of Labor Statistics, or any other entity mentioned in this article.*

MENA Economy Set for 8.5% Rebound in 2027 After Deep 2026 Slump: BMI

 MENA Economy Set for 8.5% Rebound in 2027 After Deep 2026 Slump: BMI

## Introduction: The Year the Middle East Held Its Breath

If you've been watching the news, you've seen the headlines: war in the Middle East, oil tankers stranded, supply chains fracturing. But beneath the geopolitical chaos, there's a story that's quietly unfolding—one that could reshape the global economy in ways most Americans haven't yet realized.

The Middle East and North Africa (MENA) region is enduring its deepest economic contraction in years. BMI, a Fitch Solutions research house, now projects the regional economy will contract by **0.7% to 3% in 2026**. Iraq, Kuwait, Qatar, and Bahrain are facing double-digit GDP declines.

But here's the twist that has economists and investors paying attention: BMI forecasts a remarkable **8.5% rebound in 2027** for the Gulf Cooperation Council economies. The broader MENA region is expected to grow at **6.5% to 8.1%**.

This isn't just a regional story. It's a global one. The Strait of Hormuz—through which roughly a fifth of the world's seaborne oil and LNG passes—has been effectively shut. And what happens in the Persian Gulf doesn't stay in the Persian Gulf. It shows up at your gas pump, in your grocery bill, and in your 401(k).

Let's break down what's happening, why it matters, and what the rebound could mean for you.

---

## The 2026 Slump: A Perfect Storm of War and Disruption

### The Strait of Hormuz: The World's Most Dangerous Chokepoint

The root cause of the 2026 MENA economic collapse is simple: **the Strait of Hormuz is closed**.

The strait is the world's most critical energy chokepoint. Roughly **one-fifth of global oil and LNG supply** normally passes through its narrow waters. When the US-Iran conflict escalated in early 2026, Iran moved to shut the strait, and Washington responded with a naval blockade of Iranian ports.

The result? A supply shock that has rattled global markets. BMI has put its full-year oil forecast under review and lifted its working range for Brent to **$80–95 a barrel** in the second half of 2026, up from the $70–80 it had penciled in under its "constructive" scenario. A sustained break above $90 would start to embed supply-shortage fears, BMI analysts warned.

### The Countries Hit Hardest

Not all MENA economies are suffering equally. The divide comes down to one factor: **whether a country can get its exports out through an alternative to Hormuz**.

**In the contraction zone:**

- **Iraq** is expected to shrink **8.5%** as collapsing oil exports open a **$30 billion fiscal gap**

- **Kuwait** is projected to fall **8.1%** as both oil and non-oil activity weaken

- **Qatar** is expected to contract **7.2%** as LNG exports remain stranded

- **Bahrain** is in the most vulnerable position, with BMI forecasting its deficit to widen to **8.5% of GDP** and debt to exceed **150%**

Other sources paint an even grimmer picture. BMI has projected that Iraq, Kuwait, Bahrain, and Qatar could see GDP shrink by **19.4%, 20.5%, 16.1%, and 12.4%**, respectively.

### The "Messy Negotiations" Factor

The situation has been complicated by what BMI calls **"messy negotiations"**. Even if a diplomatic breakthrough happens, it won't mean an immediate return to normal. BMI expects a one-month test period, followed by at least six to 12 weeks of sustained calm, before tanker traffic returns to levels shippers consider commercially normal. Broader cargo vessels are expected to lag even further behind.

## The Surprising Outperformers: Who's Weathering the Storm?

### Saudi Arabia: Geography as Destiny

Saudi Arabia is one of the few bright spots in the 2026 gloom. The Kingdom is expected to grow **around 1% in 2026**, supported by its **Red Sea export corridor**—which bypasses the Strait of Hormuz—and continued public investment. BMI expects Saudi growth to accelerate to **6.8% in 2027**.

The Red Sea route isn't without risk—disruption from Yemen remains a key concern—but for now, geography is doing Saudi Arabia a favor. A Reuters poll of economists has the Kingdom as one of just two Gulf economies still growing in 2026.

### Oman: The Unexpected Leader

Oman is expected to **lead the GCC with 3.1% growth in 2026**, thanks to exports through Mina Al Fahl, which bypasses Hormuz. That's a remarkable performance in a year when most of its neighbors are contracting. Oman's growth is projected to moderate to 1.7% in 2027.

### Egypt: The Resilient Giant

Egypt tells a different story. While the region struggles with oil-related disruptions, Egypt's economy is already gaining momentum. Real GDP grew **4.4% in FY2024/25**, compared with 2.4% a year earlier. Growth accelerated to **5.3% year-on-year in the first quarter of FY2025/26**, supported by non-oil manufacturing, transportation, finance, and tourism.

The IMF has forecast Egypt's economy will grow **4.6% in 2026**, up 0.4 percentage points from its previous projection. BMI projects Egypt's growth at **5% in FY2026/27**.

Egypt's resilience comes despite significant headwinds. The Suez Canal, a critical source of foreign exchange, has seen traffic decline as ships diverted around the Cape of Good Hope during the Red Sea crisis. But the IMF has identified a faster recovery in Suez Canal traffic as an upside risk to Egypt's growth outlook.

### The UAE: The Middle Ground

The UAE falls somewhere in between. While it has rerouted some crude exports through Fujairah, weakness in the non-oil economy is projected to leave growth **broadly flat in 2026**. Other sources suggest modest growth of 0.3%, supported by stronger oil production and its ability to partially bypass Hormuz disruptions.

## The 2027 Rebound: What's Driving the Optimism?

### The Energy Sector Comeback

The recovery story starts with energy. GCC oil sector output is forecast to decline by **14.5% in 2026**—the steepest decline in several decades—but a strong **23.5% rebound is projected for 2027** as output recovers from a severely depressed base.

ICAEW and Oxford Economics project energy sector growth of **18.2% in 2027** as supply conditions stabilize. The pace of recovery will depend on how quickly current disruption subsides.

### The Non-Oil Engine

The non-oil sector is expected to play a critical role in the recovery. Non-oil GDP across the GCC is projected to remain broadly stable at **0.1% in 2026** before accelerating to **6.4% in 2027**.

This reflects the strength of domestic demand, expanding digital infrastructure, and continued government investment in strategic sectors such as healthcare, artificial intelligence, and financial services.

### Tourism's Gradual Return

Tourism and travel are anticipated to normalize more gradually, reflecting their sensitivity to accessibility and sentiment. Airspace disruption has limited international visitors, with arrivals to the Middle East projected to decline by **11% to 27% this year**. However, analysts expect the impact to remain short-lived as regional hubs restore capacity and travel confidence improves.

### The Fiscal Policy Buffer

Higher oil prices are helping offset temporary export constraints in some markets, while governments across the region continue to prioritize growth-supportive spending programs aligned with long-term transformation agendas.

The IMF has repeatedly highlighted that GCC countries are entering the current phase of uncertainty with "strong fiscal and external buffers, low public debt in several economies, and sustained progress in economic diversification".

## The Global Implications: What This Means for Americans

### At the Gas Pump

The Strait of Hormuz closure has already pushed oil prices higher. BMI has lifted its working range for Brent to **$80–95 a barrel**. S&P Global expects Brent to average **$110 per barrel for the remainder of 2026** before falling to **$80 in 2027**.

If you've noticed higher gas prices, this is why. And until the strait reopens, those prices are likely to remain elevated.

### In Your Portfolio

The MENA region is a significant player in global energy markets, and the 2026 contraction has ripple effects for global growth. But the projected 2027 rebound could create opportunities for investors who position themselves early.

The recovery is expected to be led by the energy sector, but non-oil sectors—particularly financial services, technology, and healthcare—are also expected to benefit from continued government investment and structural reforms.

### For the Global Economy

A 6.5% to 8.5% rebound in the MENA region would be one of the fastest growth rates in the world. That would support global demand for everything from machinery to consumer goods, potentially benefiting American exporters.

But the recovery depends on one critical factor: **the reopening of the Strait of Hormuz**. As BMI noted, "almost all of that recovery rests on oil exports, which in turn depend on the reopening of the Strait of Hormuz".

## The Risks: What Could Derail the Recovery?

### The "Messy Negotiations" Scenario

Diplomacy is fragile. BMI has warned that even a breakthrough "buys months, not weeks". Traffic is likely to remain "stop-start and vulnerable to disruption," while the risk of renewed military escalation remains elevated.

### The Iran Fee Proposal

BMI expects Iran to push for fees on vessels using the strait. More plausible is a services-fee structure tied to navigation, traffic management, and environmental protection—the Malacca Strait model—with Oman steering the GCC in that direction. One wrinkle BMI flagged: a US security-services fee on ships it escorts could end up normalizing Iran's own demand for a fee.

### The Yemen Risk

Saudi Arabia's Red Sea export corridor, which has spared the Kingdom the worst of the Hormuz squeeze, remains vulnerable to disruption from Yemen.

### The Suez Canal Factor

For Egypt, a recovery in regional shipping would support Suez Canal activity and foreign-exchange revenues. But the canal remains vulnerable to broader regional disruptions.

## Frequently Asked Questions (FAQs)

### 1. What is BMI and why does its forecast matter?

BMI is a Fitch Solutions research house that provides economic analysis and forecasts for countries around the world. Its MENA forecasts are widely followed by investors, policymakers, and businesses operating in the region.

### 2. Why is the MENA economy contracting in 2026?

The contraction is driven primarily by the closure of the Strait of Hormuz, through which roughly one-fifth of global oil and LNG supply normally passes. The US-Iran conflict has effectively shut the strait, disrupting energy exports from the Gulf.

### 3. Which countries are being hit hardest?

Iraq, Kuwait, Qatar, and Bahrain are facing the steepest contractions. Iraq's economy is expected to shrink 8.5% as collapsing oil exports open a $30 billion fiscal gap.

### 4. Which countries are weathering the storm?

Saudi Arabia is expected to grow around 1% in 2026 thanks to its Red Sea export corridor. Oman is expected to lead the GCC with 3.1% growth. Egypt's economy is already gaining momentum, with growth expected to hover near 5%.

### 5. How strong will the 2027 rebound be?

BMI projects GCC growth could surge to **8.5% in 2027**. The broader MENA region is expected to grow at **6.5% to 8.1%**. The energy sector is expected to lead the recovery, with GCC oil output projected to rebound 23.5%.

### 6. What does this mean for oil prices?

BMI has lifted its working range for Brent to **$80–95 a barrel** in the second half of 2026. S&P Global expects Brent to average **$110 per barrel for the remainder of 2026** before falling to **$80 in 2027**.

### 7. What are the risks to the recovery?

The recovery depends on the reopening of the Strait of Hormuz. Even if a diplomatic breakthrough happens, traffic is likely to remain "stop-start and vulnerable to disruption". The risk of renewed military escalation remains elevated.

### 8. How does this affect the US economy?

Higher oil prices from the Hormuz closure have already pushed up gas prices. A sustained rebound in the MENA region would support global demand, potentially benefiting US exporters. But the recovery depends on factors beyond US control.

---

## Conclusion: A Region at a Crossroads

The MENA region is enduring one of the most severe economic contractions in its history. The closure of the Strait of Hormuz has exposed the vulnerability of economies built on energy exports, with Iraq, Kuwait, Qatar, and Bahrain facing double-digit GDP declines.

But the projected 8.5% rebound in 2027 offers a glimpse of what's possible when the strait reopens. The energy sector is expected to lead the recovery, with non-oil sectors—tourism, financial services, technology, and healthcare—following as confidence returns.

For American readers, this story matters. What happens in the Persian Gulf affects gas prices, global supply chains, and the broader economy. The 2026 contraction is a reminder of how interconnected the global economy has become—and how vulnerable it remains to geopolitical shocks.

The next year will be critical. If diplomacy succeeds and the strait reopens, the rebound could be one of the fastest in the world. If negotiations stall or conflict escalates, the region—and the global economy—could face even deeper pain.

Either way, the MENA region is at a crossroads. And the path it takes will shape the global economy for years to come.

---

## Disclaimer

*This article is for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. All views expressed are based on the analysis of publicly available information, including reports from BMI, ICAEW, Oxford Economics, the IMF, and other cited sources. Economic forecasts, GDP projections, and oil price estimates are inherently uncertain and subject to change. The author does not endorse any specific investment strategies or recommendations. Before making any financial or investment decisions based on the content of this article, please consult with qualified professionals who can evaluate your specific situation. The author is not affiliated with BMI, Fitch Solutions, ICAEW, Oxford Economics, the IMF, or any other entity mentioned in this article.*

A Positive New Report Raises the Question: Was Reeves Undermined by Dodgy Data?

 A Positive New Report Raises the Question: Was Reeves Undermined by Dodgy Data?

## Introduction: The Ghost in the Machine

Imagine steering a ship through a storm, only to discover later that your compass was broken. You made the hard calls—cutting ballast, changing course, asking the crew to pull double duty—based on readings that weren't just slightly off, but fundamentally wrong. That's the uncomfortable position Rachel Reeves may now find herself in.

A remarkable new assessment from the Centre for Economic Performance at the London School of Economics suggests the UK's productivity—the critical measure of economic strength—may have been systematically underestimated. Instead of stagnation, the report points to a "meaningful pickup" in productivity since mid-2024, with annual growth of about **1.6%** —up from an average of just 0.3% in the previous decade.

The question that haunts this revelation is simple but devastating: was Rachel Reeves undermined by dodgy data?

---

## The Story That Wasn't Told

When Labour came to power, the narrative was already written. Britain was an economy in decline, beset by intractable long-term challenges. Productivity—how much output each worker produces—had been stuck in the mud since the 2008 financial crisis. The Office for Budget Responsibility (OBR) had downgraded its productivity projections from 1.3% annual growth to just 1%. The gloomy sense was that Labour was overseeing an economy that simply couldn't grow.

Reeves spent months scrambling to respond. The downgrade contributed to the size of the tax grab she needed to make in last year's budget. It forced her to raise taxes significantly last autumn to rebuild headroom against her fiscal rules and pay for Labour's welfare U-turn. It shaped her entire economic strategy.

But what if the data was wrong?

The LSE report paints a markedly different picture. Productivity is defined as how much output each worker produces. But the UK has been botching the job of sizing up the workforce for years. The beleaguered Office for National Statistics (ONS) withdrew the status of accredited official statistic from its Labour Force Survey (LFS) in 2024 as it struggled with plunging response rates. The data Reeves and the OBR relied on was, to put it bluntly, unreliable.

Instead of using the LFS, the LSE authors—including former Reeves advisers John Van Reenen and Anna Valero—used estimates from the Resolution Foundation thinktank. Their approach relies on an alternative dataset published by the ONS, based on what companies tell the tax authorities through the PAYE system.

The differences are staggering.

While the LFS records a **377,000 increase** in the number of employees since mid-2024, the tax-based measure shows a **decline of 133,000**. That's a gap of more than half a million people. The ONS doesn't seem to know who is working in Britain. And if it doesn't know who is working, it certainly can't accurately measure productivity.

---

## The Real Scandal: Britain's Broken Statistics

This isn't the first time the ONS has had problems. The organisation has been plagued by issues for years:

- **2024:** The LFS was stripped of its accredited official statistic status due to plunging response rates.

- **2025:** The ONS admitted its estimates of public borrowing had been out by £200m-£500m a month since January.

- **2025:** A VAT error overstated government borrowing figures, giving Reeves an extra £2bn in budget headroom.

- **2026:** The ONS found errors in the price indices it uses to calculate GDP.

- **2026:** TD Securities argued that the ONS may be mis-measuring seasonal patterns in UK GDP, potentially overstating reported Q1 growth by as much as **0.25 percentage points**.

The pattern is clear. Britain's official statistics have been riddled with errors, inconsistencies, and methodological problems. The data that policymakers rely on to make trillion-pound decisions has been fundamentally unreliable.

But the productivity miscalculation may be the most consequential of all.

---

## The Price of Bad Data

Why does productivity matter so much? Because it's the engine of long-term economic growth. Weaker productivity means weaker growth, which broadly translates to lower tax revenues and a bigger public deficit.

The OBR's productivity downgrade didn't reflect anything Labour had done. It resulted instead from the long-term failure of productivity growth to bounce back after the 2008 financial crisis. But the downgrade became pivotal because Reeves had left herself so little room for manoeuvre. Her self-imposed fiscal rules—borrowing only for investment and getting debt falling—meant that even a small change in the OBR's projections could trigger a major policy response.

So Reeves raised taxes. She increased employer national insurance contributions. She made difficult choices that shaped her political legacy. All based on data that may have been fundamentally wrong.

As Reeves returns to the back benches this autumn, she could be excused for feeling her challenges at No 11 were exacerbated by dodgy data.

---

## The Human Cost

There's a human dimension to this that the numbers don't capture.

Reeves was the first woman to serve as Chancellor of the Exchequer. She was a symbol of fiscal competence in a party that had spent years being caricatured as economically irresponsible. She had left herself virtually no room for error, believing she had to prove Labour could be trusted with the nation's finances.

The productivity downgrade forced her to raise taxes in ways that were politically damaging and economically controversial. It contributed to a "gloomy sense that Labour was overseeing an economy beset by intractable long-term challenges". It made her appear less competent than she actually was.

If the LSE's new estimates are correct—if productivity has been growing at 1.6% rather than 1%—then the entire foundation of Labour's economic narrative was built on sand. The gloom wasn't real. The constraints were artificial. The tax rises may have been unnecessary.

That doesn't mean Reeves was a perfect Chancellor. There were real problems with her economic strategy. But she was operating with a broken compass. The data she relied on to navigate the storm was systematically misleading.

---

## The Bigger Picture: A Crisis of Trust

The UK's statistical system is in crisis. The ONS has been struggling for years with falling response rates, methodological problems, and a reputation for unreliability. The productivity miscalculation is just the latest example of a deeper institutional failure.

The LSE report has emphasised the urgent need to appoint a new national statistician. The position has been vacant, and the lack of leadership has allowed problems to fester. The UK needs someone who can rebuild trust in the statistics that underpin the entire economy.

But even that may not be enough. The problems with the LFS are structural. With response rates plummeting, the ONS simply can't get an accurate picture of the workforce. The alternative PAYE-based measure produces wildly different results. Unless the ONS can find a way to fix its data collection methods, the UK will continue to be flying blind.

---

## What This Means

For British voters, the productivity miscalculation raises uncomfortable questions. How many other policy decisions have been based on dodgy data? How many other aspects of the UK's economic performance have been systematically underestimated? How much of the gloom that has defined the past few years was manufactured by statistical errors?

The LSE report suggests that the UK's economic story may be more positive than anyone realised. Instead of stagnation, there has been a "meaningful pickup" in productivity. The economy may be stronger than the official numbers suggested. The constraints that shaped Labour's fiscal strategy may have been less binding than they appeared.

But the damage has been done. Reeves raised taxes based on the downgraded numbers. The public is more pessimistic about the economy than they should be. And the credibility of Britain's statistical system has been damaged.

---

## Frequently Asked Questions (FAQs)

### 1. What was the productivity downgrade that affected Rachel Reeves?

The Office for Budget Responsibility downgraded its productivity growth projections from 1.3% annual growth to 1%. This meant weaker growth, lower tax revenues, and a bigger public deficit. The downgrade contributed to the gloomy economic narrative and forced Reeves to raise taxes to rebuild her fiscal headroom.

### 2. What does the new LSE report say about UK productivity?

The LSE's Centre for Economic Performance has found that UK productivity may have been systematically underestimated. Instead of stagnation, the report points to a "meaningful pickup" in productivity since mid-2024, with annual growth of about 1.6%—up from an average of 0.3% in the previous decade.

### 3. Why has UK productivity data been unreliable?

The Office for National Statistics has struggled with plunging response rates for its Labour Force Survey (LFS), which measures employment. In 2024, the LFS was stripped of its accredited official statistic status. An alternative tax-based measure produces dramatically different results, with a gap of more than 500,000 employees between the two datasets.

### 4. What is the difference between the LFS and the PAYE-based measure?

The LFS records a **377,000 increase** in the number of employees since mid-2024. The tax-based PAYE measure shows a **decline of 133,000**. This massive discrepancy—more than half a million people—means the ONS doesn't know who is working in Britain, making accurate productivity measurement impossible.

### 5. Was Rachel Reeves undermined by bad data?

Heather Stewart's article raises exactly this question. The productivity downgrade that forced Reeves to raise taxes was based on unreliable LFS data. If the LSE's new estimates are correct, the gloom that shaped Labour's economic strategy may have been artificial. Reeves could be excused for feeling her challenges at No 11 were exacerbated by dodgy data.

### 6. What needs to happen to fix UK statistics?

The LSE report emphasises the urgent need to appoint a national statistician. The position has been vacant, and the lack of leadership has allowed problems to fester. The UK also needs to find a way to fix its data collection methods, particularly for the Labour Force Survey.

### 7. Could the UK economy be stronger than official numbers show?

Yes. The LSE report suggests that productivity—a critical measure of economic strength—may have been systematically underestimated. If productivity has been growing at 1.6% rather than 1%, the UK economy is stronger than the official narrative suggested.

---

## Conclusion: The Compass Was Broken

The story of Rachel Reeves and the productivity downgrade is a cautionary tale about the dangers of governing with broken data.

Reeves made her decisions in good faith, believing the OBR's projections were accurate. She raised taxes, imposed fiscal discipline, and tried to prove Labour could be trusted with the economy. All based on numbers that may have been systematically wrong.

The LSE's new assessment is a reminder that the UK's statistical system is in crisis. When the ONS can't measure the workforce accurately, it can't measure productivity accurately. When it can't measure productivity accurately, it can't provide a reliable foundation for economic policy. The result is a system where policymakers are flying blind, making decisions based on data that is fundamentally unreliable.

For Reeves, the damage is done. She has returned to the back benches, and her legacy is already being written. But the question that Heather Stewart has raised—"was Reeves undermined by dodgy data?"—deserves an answer. The evidence suggests she was.

The UK needs to fix its statistics. It needs a national statistician who can rebuild trust. It needs to find a way to measure the workforce accurately. And it needs to ensure that future Chancellors aren't making trillion-pound decisions based on data that is fundamentally unreliable.

Because a compass that doesn't work isn't just useless. It's dangerous.

---

## Disclaimer

*This article is for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. All views expressed are based on the analysis of publicly available information, including the Guardian article by Heather Stewart, the LSE report, and other cited sources. Economic data, statistical methods, and policy decisions are subject to change. The views expressed in this article are those of the author and do not necessarily reflect the views of the Guardian, the London School of Economics, the Office for National Statistics, or any other entity mentioned. Before making any financial or investment decisions based on the content of this article, please consult with qualified professionals who can evaluate your specific situation.*

Fed's Goolsbee Says Latest Inflation Data Is Better — But He's Not Ready to Celebrate Yet

 Fed's Goolsbee Says Latest Inflation Data Is Better — But He's Not Ready to Celebrate Yet

## Introduction: The "Golden Path" That's Still Out of Reach

There's a moment in every economic cycle when the data starts to whisper what everyone wants to hear. For Austan Goolsbee, president of the Chicago Federal Reserve Bank, that whisper came on Thursday, August 13, 2026.

Speaking in a Fox News interview, Goolsbee offered what might be the most cautiously optimistic assessment of inflation we've heard from a Fed official in months. The latest U.S. inflation data has been "a little better," he said. If the effects of tariffs and higher oil prices from the Iran war continue to fade, he believes the economy could get back on what he called the "golden path"—inflation heading back to the Fed's 2% target.

But here's the catch: Goolsbee isn't ready to declare victory. Not even close.

"The overall level being in the 3%, that's too high; that's not great," he said. Inflation has been "too high" and progress "stalled out a little bit and was going the wrong way," he acknowledged. The good news is that "for a couple of months, we've been getting a little bit better readings and hopefully that will continue".

That's the delicate balancing act at the heart of Goolsbee's message—and at the heart of the Federal Reserve's current dilemma. Inflation is improving, but it's not yet good enough. The economy feels stable, but the inflation component is still the thing everyone is watching.

Let's break down exactly what Goolsbee said, what the data shows, and what it all means for your wallet, your mortgage, and the broader economy.

---

## The Numbers That Got Goolsbee Talking

### CPI: A Second Month of Moderation

The July Consumer Price Index report, released on August 12, gave Goolsbee and his colleagues something to work with. Consumer prices rose just **0.1%** in July, putting the annual inflation rate at **3.4%**—down slightly from 3.5% in June. Core CPI, which excludes volatile food and energy prices, rose 0.2% monthly and 2.5% annually, matching the slowest annual pace since March 2021.

For context, that's the second consecutive month of moderation. As recently as May, PCE inflation—the Fed's preferred measure—had peaked at 4.1% before dropping to 3.7% in June. The trend line is moving in the right direction.

But "moving in the right direction" is not the same as "arrived." As Goolsbee put it, the overall inflation level is still in the 3% range, which remains "too high". The Fed targets 2% inflation as measured by the 12-month change in the personal consumption expenditures price index; in June, that was still 3.7%.

### PPI: The Wholesale Confirmation

The following day, the Producer Price Index offered a second layer of reassurance. Wholesale inflation was **flat** in July, below the 0.2% increase economists had expected. On an annual basis, headline PPI increased **4.7%**, down from 5.5% in June and below the 4.9% forecast. Core PPI rose 4.2% annually, also showing significant deceleration.

These back-to-back reports—milder-than-expected consumer and producer price inflation in July, following the weak jobs report from the previous Friday—have "mostly erased the expectation of any near-term Fed move".

### The Labor Market Context

The inflation data didn't arrive in a vacuum. On August 7, the July jobs report showed that employers shed **23,000 jobs**—a sign that the labor market is finally cooling. While unemployment remains historically low at 4.1%, the softening employment picture has given the Fed more reason to pause.

Goolsbee described the broader U.S. economy as "fairly stable," with the main focus remaining on the inflation component. He also noted that consumer demand is vital to overall U.S. economic growth, and he would be concerned if retail sales weakened for several consecutive months.

---

## What Goolsbee Actually Said: The Key Quotes

### "A Little Better"

The headline from Goolsbee's interview is simple but significant: "The good news is the new information that's been coming in has been a little better".

That's not a declaration of victory. It's not even a declaration of progress. It's a recognition that the data has stopped getting worse—and has started, tentatively, to get better.

### The "Golden Path"

Goolsbee's most memorable phrase was his invocation of the "golden path"—a concept he's been developing in recent months. "If we can get some of this stuff into the rearview mirror then I think we get back on what I was calling the golden path, which is inflation heading back to 2%".

The "stuff" he's referring to includes tariffs and the higher oil prices that resulted from the Iran war. If those pressures can be "worked through," Goolsbee said, the economy could return to a path where inflation heads back toward the Fed's 2% objective.

### The 3% Problem

Despite the improvement, Goolsbee was careful not to sugarcoat the situation. "The overall level being in the 3%, that's too high; that's not great," he said. "Inflation has been too high and our progress stalled out a little bit and was going the wrong way," he added.

This is the uncomfortable truth at the heart of the Fed's current position: inflation is improving, but it's still well above target. The hardest part of taming inflation often comes at the end, and the Fed still has a long way to go.

---

## The Fed's Internal Divide: Goolsbee vs. the Hawks

### Three Different Takes

Goolsbee's comments came on the same day that two other Fed officials offered very different perspectives on the path forward.

**Richmond Fed President Thomas Barkin** echoed Goolsbee's more patient approach, telling the Greenville Chamber of Commerce that much of today's elevated inflation reflects shocks—including tariffs, oil prices, and AI-related demand—that he expects to pass, leaving current rates potentially restrictive enough without further tightening.

**Cleveland Fed President Beth Hammack**, however, maintained a hawkish stance, arguing that policy needs to tighten now. She was one of three policymakers who dissented at the July meeting, favoring a 25-basis-point rate increase.

### The Voting Dynamics

It's worth noting that neither Goolsbee nor Barkin is a voting member of the Federal Open Market Committee this year. Their comments function more as a "read on the committee's broader mood" than as a direct lever on the September decision.

But the fact that a third relatively patient voice emerged in the same 24-hour window is significant. As one analysis put it, Goolsbee's framing "will likely reinforce the market's move toward pricing out a hike rather than pricing one in".

### The September Odds

The market has shifted dramatically in response to the data and the Fed's public commentary. As recently as a month ago, federal funds rate futures showed that the market expected the Fed to raise rates at least twice this year, with the first hike likely occurring in September.

Today, the probability of a September rate hike has dropped to around **30%**, and traders expect the Fed to raise rates only once by the end of the year. CME FedWatch data shows the probability of the Fed maintaining rates in September at **65.2%** to **67.5%**.

---

## The "Golden Path" Conditions: What Goolsbee Needs to See

### Three to Four More Months

Goolsbee has been clear about what he needs to see before he's convinced that inflation is truly on track to return to 2%. He wants **three to four more months** of cooling inflation data similar to what we've seen in June and July.

"The past three months of data have encouraged me. If we can see three or four consecutive months of data similar to June, I will be more confident that inflation is on track to return to 2 percent," Goolsbee said.

That's a high bar. And it reflects the painful history of fighting inflation that has shaped Goolsbee's current policy thinking.

### The Historical Context

Goolsbee's caution is rooted in two episodes: the Fed's long battle against inflation in the 1980s and the post-pandemic surge that peaked above 7% in 2022. Prices have spent more than five years above the Fed's 2% target.

"Both of those histories have shaped my current policy thinking, making me more vigilant on the inflation side," Goolsbee said. "History and the past five years both show that once inflation takes hold, eliminating it is painful and difficult".

### The Tariff and Oil Factors

Goolsbee attributed much of the current inflation surge to factors he had originally hoped would prove temporary. "A lot of the drivers had come from tariffs and then from oil prices," he said, describing these as disruptions the Fed hoped would be "one time increases rather than a lasting shift in the inflation trend".

This framing is significant because it suggests that if tariffs and oil prices normalize, inflation could fall back toward target without requiring aggressive Fed action. But that's a big "if"—and it depends on factors well beyond the Fed's control.

---

## The Market Reaction: A Record High, But Caution Remains

### Stocks Rally on the Data

The market's response to the inflation data and Goolsbee's comments was broadly positive. The S&P 500 closed at a record high on August 13, rising 0.65% to 7,798.99 points. The Nasdaq gained 0.81%, and the Dow Jones Industrial Average added 0.13%.

Investors interpreted the data as reducing the likelihood of further Fed tightening. As one analysis put it: "Wall Street relaxed after a report showed prices at the wholesale level were slightly better than economists expected".

### The Bond Market Response

Bond markets also responded favorably. Treasury yields eased as investors scaled back expectations for a September rate hike. The 10-year Treasury yield, which influences mortgage rates and corporate borrowing costs, fell modestly.

### The Fragile Optimism

But the market's optimism is fragile. As Goolsbee himself noted, "we're in that delicate space where the overall economy feels fairly stable and we're mostly watching the inflation component". If the August CPI report shows renewed energy-driven inflation—crude oil has already jumped 10% over the past week—the narrative could shift quickly.

---

## What This Means for American Consumers

### For Homebuyers and Homeowners

The shift in rate expectations has already had an impact on mortgage rates. As of August 15, the average 30-year fixed mortgage rate had dropped to **6.54%**, down 11 basis points from the previous day. The 15-year fixed rate fell even more dramatically, dropping 21 basis points to 5.86%.

If the Fed holds rates steady in September, mortgage rates could continue to ease modestly. But don't expect a return to the sub-4% rates of the pandemic era. The Fed's benchmark rate remains at a 23-year high, and rates are likely to remain elevated for the foreseeable future.

### For Savers and Investors

For savers, the pause in rate hikes means deposit rates may stabilize rather than continue rising. The current federal funds rate of 3.50%–3.75% is still attractive relative to recent history, but the momentum is slowing.

For investors, the Fed's cautious stance has been broadly positive for stocks, but the AI-driven rally has been the dominant theme. Goolsbee flagged a softening in productivity growth, which has slowed over recent quarters from last year's highs. If productivity gains prove unsustainable, "it would fundamentally change all the narratives about AI and productivity growth, and their implications for monetary policy and the economy".

### For Workers

The softening labor market is a double-edged sword. On one hand, weaker job growth gives the Fed more reason to pause on rate hikes. On the other hand, it could signal the beginning of a broader slowdown.

Goolsbee described the U.S. economy and labor market as "basically stable", but the trend is worth watching. If retail sales weaken for several consecutive months, Goolsbee said he would be concerned.

---

## The Wild Cards: What Could Derail the "Golden Path"

### Oil Prices

The single biggest wild card remains energy prices. Crude oil has already jumped 10% over the past week as hopes for a diplomatic breakthrough in the Middle East have faded. The Strait of Hormuz remains effectively closed, and Iran's demands for reopening are steep.

If oil prices spike again, inflation could reaccelerate, forcing the Fed to reconsider its pause. Goolsbee's "golden path" depends on the fading of tariff and oil price effects. If those effects don't fade, the path gets a lot rockier.

### Tariffs

The tariff situation is similarly uncertain. The Supreme Court struck down certain IEEPA tariffs in February, triggering a wave of refunds that have juiced corporate profits and GDP. But the broader tariff landscape remains unsettled, and any new trade actions could reignite inflationary pressures.

### The AI Productivity Question

Goolsbee also flagged a softening in productivity growth, which has slowed over recent quarters. Some economists and officials, including Fed Chair Kevin Warsh, argue that AI and other new technologies are helping companies lift efficiency, potentially allowing faster growth without inflation pressure.

But Goolsbee cautioned that faster productivity does not necessarily justify rate cuts—it could fuel large investment demand, as the flood of capital into AI shows, and risk overheating the economy. If productivity gains prove unsustainable, "it would fundamentally change all the narratives about AI and productivity growth, and their implications for monetary policy and the economy".

---

## Frequently Asked Questions (FAQs)

### 1. What exactly did Fed's Goolsbee say about inflation?

Chicago Fed President Austan Goolsbee said the latest U.S. inflation data has been "a little better" and expressed hope that as the effects of tariffs and higher oil prices from the Iran war fade, inflation can continue to improve. He said the economy could return to what he called the "golden path"—inflation heading back to the Fed's 2% target. However, he acknowledged that the overall inflation level in the 3% range remains "too high".

### 2. What were the July inflation numbers?

The July Consumer Price Index showed headline inflation at **3.4%** annually, down from 3.5% in June. Core CPI was 2.5%, the slowest annual pace since March 2021. The Producer Price Index was **flat** in July, with annual PPI cooling to 4.7% from 5.5% in June.

### 3. Does Goolsbee think the Fed will cut rates soon?

No. Goolsbee supported the Fed's decision to hold rates steady at the July meeting and has said he needs to see three to four more months of cooling inflation data before he is convinced prices are returning to the 2% target. He has not specified a preferred timeline for rate cuts, saying decisions will be data-dependent.

### 4. What is the "golden path" Goolsbee mentioned?

The "golden path" is Goolsbee's term for a scenario where inflation heads back toward the Fed's 2% target. He believes that if the effects of tariffs and higher oil prices from the Iran war can be put "into the rearview mirror," the economy could get back on that path.

### 5. How likely is a September rate hike?

Market expectations for a September rate hike have fallen significantly. CME FedWatch data shows the probability of the Fed maintaining rates in September at **65.2%** to **67.5%**, with the probability of a 25-basis-point hike at around **30%** to **35%**.

### 6. What does Goolsbee think about the AI productivity boom?

Goolsbee flagged a softening in productivity growth, which has slowed over recent quarters. He cautioned that if productivity gains prove unsustainable, "it would fundamentally change all the narratives about AI and productivity growth". He also noted that faster productivity does not necessarily justify rate cuts—it could fuel large investment demand and risk overheating the economy.

### 7. Is the Fed divided on the path forward?

Yes. The Fed is sharply divided. Goolsbee and Richmond Fed President Thomas Barkin represent the more patient wing, arguing that current shocks—tariffs, oil prices, AI demand—should pass. Cleveland Fed President Beth Hammack represents the hawkish wing, arguing that policy needs to tighten now. Three policymakers dissented at the July meeting in favor of a 25-basis-point hike.

### 8. What are the risks to Goolsbee's "golden path"?

The main risks are oil prices—which have already jumped 10% over the past week—and tariffs. If these pressures don't fade, inflation could reaccelerate. Goolsbee also flagged the softening productivity growth as a potential concern that could "fundamentally change" the AI narrative.

---

## Conclusion: A Little Better, But Not There Yet

Austan Goolsbee's assessment of the inflation data captures the Federal Reserve's current predicament perfectly. The numbers are improving—"a little better," as he put it. The "golden path" back to 2% is visible on the horizon. But the journey is far from complete.

The overall inflation level is still in the 3% range, "too high" to declare victory. The labor market is softening. The Fed is deeply divided on the path forward. And the wild cards—oil prices, tariffs, and the sustainability of the AI productivity boom—could derail the entire process.

For American consumers, the message is one of cautious optimism. Inflation is cooling. Rate hike expectations are receding. Mortgage rates are easing. But the underlying pressures that have driven prices higher for the past five years haven't disappeared. The hardest part of taming inflation often comes at the end, and the Fed still has a long way to go.

Goolsbee's comments are a reminder that progress is not the same as victory. The data is getting better, but it's not yet good enough. The economy feels stable, but the inflation component remains the central concern. And until the Fed sees three to four more months of improvement, the "golden path" will remain just out of reach.

For now, we watch. We wait. And we hope that the data continues to move in the right direction. As Goolsbee said, "we're in that delicate space where the overall economy feels fairly stable and we're mostly watching the inflation component".

---

## Disclaimer

*This article is for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. All views expressed are based on the analysis of publicly available information, including Federal Reserve statements, government data releases, and media reports. Economic conditions, inflation rates, and Federal Reserve policy are subject to change. The views of Austan Goolsbee and other Fed officials are their own and do not necessarily reflect the views of the Federal Reserve System. Before making any financial decisions based on the content of this article, please consult with qualified professionals who can evaluate your specific situation. The author is not affiliated with the Federal Reserve, the Bureau of Labor Statistics, or any other government agency mentioned in this article.*