US Q2 2026 Macro Outlook: Fiscal Shock, Sticky Inflation, and a Fed at the Crossroads

Emily Carter

Welcome to Global Equity Research from Softgate Capital Research. I’m Emily Carter, here with Gregory Palmer. If you enjoy the show, please like, share, and subscribe, and you can download the full report anytime at softgatecapitalresearch.com.

Gregory Palmer

Thanks, Emily. Q2 2026 in the U.S. looks strong if you only read the headline numbers. But the deeper story is split, almost awkwardly split, between visible fiscal lift and underlying fragility. That’s the key framing for this quarter.

Emily Carter

So, on the surface, growth is holding up. Underneath, households and businesses are not experiencing the same economy at all.

Gregory Palmer

Exactly. Consensus real GDP forecasts mostly sit around 2.1% to 2.2% year over year, with the Fed median at 2.4% and the CBO at 2.2%. But that tidy range hides a much wider dispersion in views. Goldman Sachs is materially more upbeat, looking for 2.8% full-year growth and 2.5% in the fourth quarter. RBC, by contrast, is basically saying: careful, this may be a stagflation-lite regime with growth running below the old trend rate.

Emily Carter

And a big reason the data may feel better than the economy actually is, is the timing of the fiscal support.

Gregory Palmer

Right. The OBBBA changed the fiscal map. It created a very large tax framework over the next decade, but what matters now is the near-term disbursement pattern. Several provisions were retroactive to the 2025 tax year, so between February and April 2026 you get a concentrated wave of cash hitting households. That includes the higher SALT deduction cap for households earning under $500,000, enhanced child tax credits, and exemptions for qualified tips and overtime that lifted take-home pay starting in January.

Emily Carter

Which means Q2 gets a pretty direct consumption tailwind.

Gregory Palmer

Yes, and J.P. Morgan maps that very clearly. They see an anemic first quarter, then a sharp acceleration to 3.0% annualized across the middle two quarters as tax refunds and tariff rebate checks hit, and then a slowdown later in the year as that impulse fades and higher financing costs bite again. It’s a sugar rush, but a very targeted one.

Emily Carter

Targeted is the right word. The report is pretty explicit that the benefits are skewed. Upper-income households and capital-intensive firms are getting the most immediate lift, while lower-income consumers are facing a much tougher backdrop.

Gregory Palmer

That’s the bifurcation. The same law that boosts liquidity for affluent households and supports corporate investment also tightens the social safety net. Medicaid and SNAP changes raise administrative hurdles and reduce support for vulnerable groups. So aggregate GDP can look healthier even while parts of the consumer base are getting squeezed harder. That’s why the report calls it a kind of liquidity illusion.

Emily Carter

And on the corporate side, bonus depreciation matters too. Companies can deduct the full cost of qualifying property much faster, which should help manufacturing reshoring and data-center spending.

Gregory Palmer

Absolutely. That’s one reason the bullish camp thinks the U.S. can grow above consensus. Lower corporate tax rates remain in place, 100% bonus depreciation is accelerated, and AI-related capex is still powerful. But I keep coming back to this: strong top-line growth in Q2 does not automatically mean a durable, broad-based expansion. It may just mean the fiscal wave arrived on schedule.

Emily Carter

So if listeners take one thing from chapter one, it’s this: the U.S. growth story is real, but it may be temporarily boosted and very unevenly distributed.

Emily Carter

If growth is the easy headline, inflation is still the hard part. Gregory, the report is pretty firm on that.

Gregory Palmer

[slightly nervous] Yeah, and inflation models on-air always make me tap the table a bit, so bear with me. The Fed’s March projections moved PCE inflation up to 2.7% for 2026, and core PCE to the same 2.7%. That upward revision tells you disinflation has slowed meaningfully.

Emily Carter

What keeps it sticky?

Gregory Palmer

First, core services ex housing. This is the stubborn center of the inflation story because it’s tied closely to wages and labor intensity. Think healthcare, education, personal services, all the areas where labor is the product. RBC notes this category hasn’t printed negative year over year in four decades, and with labor tightness still present, there just isn’t much relief coming from that side.

Emily Carter

And housing isn’t giving the quick disinflation many people expected either.

Gregory Palmer

Correct. Owners’ Equivalent Rent is still pressing upward, partly because it lags real-time housing conditions by roughly two years. Home prices bottomed in 2023 and then moved higher through 2024 and 2025, so that lagged effect keeps OER from helping much in 2026.

Emily Carter

Then there’s tariffs, which sound simple politically but are messy economically.

Gregory Palmer

Very messy. Goldman Sachs estimates tariff pass-through added about 0.5 percentage points to core inflation, mostly through goods. Their view is that this is largely a one-time price-level adjustment that should fade out of year-over-year comparisons by late 2026. But the more cautious view, especially from RBC, is that the peak consumer impact arrives in Q2. In other words, the goods inflation story may feel worse before it feels better.

Emily Carter

And just as that pass-through is landing, energy has become another problem.

Gregory Palmer

Exactly. Conflict involving Iran disrupted energy markets and threatened shipping lanes, pushing WTI above 95 dollars a barrel by mid-March, a roughly 40% month-to-date surge. Central banks usually try to look through commodity spikes, but when the shock is large enough and visible enough, it can bleed into freight, manufacturing, logistics, and consumer psychology.

Emily Carter

That consumer psychology piece matters because expectations themselves can make inflation harder to contain.

Gregory Palmer

That’s the crux of it. The University of Michigan survey had year-ahead inflation expectations at 3.4%, still elevated relative to the pre-pandemic range. If households think prices will keep rising, they change behavior. Businesses do too. And gasoline prices matter disproportionately here, not just because they hit inflation math, but because they’re a highly visible and regressive burden.

Emily Carter

Especially for lower-income households, where fuel and essentials take up a larger share of the budget. A jump at the pump quickly crowds out dining, apparel, and discretionary purchases.

Gregory Palmer

Yes. That’s why headline gasoline can matter more than abstract core readings in the real economy. Lower-income consumers feel it instantly. So even if some forecasters, like Vanguard or Goldman, still see core inflation easing later this year, the path in Q2 looks sticky, noisy, and socially uneven. That makes inflation the hardest problem because it constrains policy just when parts of the economy are already weakening.

Emily Carter

Let’s bring it together with policy and markets. In March, the Fed held rates steady at 3.50% to 3.75%, and the tone was clearly not dovish.

Gregory Palmer

Not at all. The March meeting was a hold, but it was a hawkish hold. The dot plot shifted to imply only one quarter-point cut in all of 2026, fewer than markets had been expecting, and the estimate of the longer-run neutral rate moved up to 3.1% from 3.0%. That says the Fed thinks the old zero-rate world is gone. Or at least, gone for now.

Emily Carter

And the labor market softening wasn’t enough to offset the inflation concerns.

Gregory Palmer

Right. Policymakers explicitly pointed to the inflation risks from oil, tariffs, and supply disruption. Then comes the leadership transition. Jerome Powell is set to be succeeded in May 2026 by Kevin Warsh, and that is not a cosmetic change. Warsh’s framework appears more structurally oriented: less fixation on every monthly data wobble, more focus on productivity, long-term inflation discipline, and the size of the Fed’s balance sheet.

Emily Carter

Which is where quantitative tightening becomes the market story.

Gregory Palmer

Exactly. Warsh has been openly critical of QE and is expected to favor a faster reduction in the Fed’s securities holdings. If you pair lower short-end policy rates, potentially, with more aggressive QT, you get a setup for curve steepening. Short rates can drift down while long-end yields stay pressured by term premium and heavier price discovery. For markets, that reshapes financial conditions in a very real way.

Emily Carter

And a steeper curve is a very different environment from the inversion banks have been dealing with.

Gregory Palmer

Yes, banks are the clearest relative beneficiary in the report. A steeper curve tends to help net interest margins, and Warsh is also aligned with a lighter-touch regulatory posture. That combination is constructive for financial equities. Industrials and materials also have upside if domestic infrastructure, defense spending, and eventually a cleaner trade backdrop support demand.

Emily Carter

But that cleaner trade backdrop is far from guaranteed, because the USMCA review hits on July first.

Gregory Palmer

That’s the binary event. The review was supposed to be administrative. Instead, it’s turned into a high-stakes negotiation over rules of origin, labor requirements, and broader political issues. If the three countries fail to agree to extend the pact cleanly, you move into destabilizing annual reviews and a long countdown to potential expiration. Companies hate that kind of uncertainty.

Emily Carter

So capex gets delayed.

Gregory Palmer

Precisely. Auto, industrial machinery, agriculture, cross-border manufacturing, all of them hesitate when the tariff framework is in question. That can freeze nearshoring plans and weigh on capital spending even while tax policy is trying to encourage investment. It’s a weird push-pull. For tech, the picture is still stronger because AI infrastructure spending remains a major earnings engine, but even there, rates, power constraints, and broader financial conditions still matter.

Emily Carter

So the market takeaway is not just “growth good” or “inflation bad.” It’s more nuanced: banks may like curve steepening and deregulation, industrials need trade clarity, and tech still has structural support but has to navigate a less forgiving rate regime.

Gregory Palmer

That’s exactly it. Q2 2026 looks like a transition quarter: a fiscal boost in the foreground, inflation pressure in the middle, and a new central-bank regime plus trade brinkmanship in the background. [pauses] And that background may end up driving the next move more than the headline GDP print.

Emily Carter

That’s where we’ll leave it for today. If you found this episode useful, please like, share, and subscribe, and download the full report at softgatecapitalresearch.com. Gregory, thanks.

Gregory Palmer

Always a pleasure, Emily. We’ll be back soon. Goodbye.

Emily Carter

Goodbye.

Emily Carter

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