Bessent Says He’s Ready to Expand Treasury Buybacks

(…) “We are announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation,” Bessent said in an interview Thursday on CNBC. He told reporters separately that President Donald Trump had tasked himself and Budget Director Russ Vought in that initiative. (…)

And he highlighted that the expanded buyback operations “could be more than the $4 billion” size currently planned to start next month. (…)

“We have a big toolkit, so we’ll see. And part of it is signaling here — to show that we believe that the yields don’t reflect the underlying fundamentals.” (…)

“All we’re trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market,” Bessent said.

He didn’t suggest what “headlines” he was concerned about the market paying attention to. But on Wednesday, Treasury data showed that one broad gauge of US debt surpassed $40 trillion for the first time.

Bessent also didn’t specify what the new fiscal push will involve. But he pointed to the potential for a fraud task force to save “hundreds of billions of dollars” and suggested that “a lot of these programs that are being given to the states” are being “frittered away” and could be cut back. (…)

“The underlying economy, I think, is very strong, and the only inflationary impulses that we’re seeing are coming from energy, which is temporary,” Bessent said. (…)

Much like a company’s CFO announcing a stock buyback after the stock tanked.

• It Didn’t Take Long for the White House to Undermine the Fed

(…) It was just a few weeks ago that Warsh told reporters that the rise in longer-term government borrowing costs served a valuable purpose, tightening financial conditions in an economy with inflation still elevated and sending key signals to the central bank on how to set monetary policy. Now comes the Treasury Department under the direction of former hedge fund manager Scott Bessent to upend all of that (…).

• Ed Yardeni:

Bessent’s Treasury is following former Treasury Secretary Janet Yellen’s 2023 playbook by financing more of the deficit in the Treasury bill market. In effect, the Treasury is forcing the Fed to buy Treasury bills to keep the federal funds rate from rising. (…)

Commodity prices suggest that significant inflationary pressure remains in the pipeline. Diesel prices have soared more than crude oil prices this year (chart). Metal prices are also up sharply on AI-related demand. Wheat prices are rising amid concerns that Russia will block Ukraine’s grain exports.

• What is Scott Bessent doing with the $32tn Treasury market — and will it work?

(…) The US Treasury’s toolkit, unlike the Federal Reserve’s, does not offer Bessent potentially unlimited powers to create cash. Unlike the Fed, the Treasury cannot engage in a multitrillion-dollar bond-buying spree — dubbed by central bankers as “quantitative easing” — to bend the yield curve and keep the government’s borrowing costs low. (…)

The likely strategy of buying long and issuing short has drawn comparisons with the Fed’s Operation Twist in 2011, where the central bank used the proceeds of sales of hundreds of billions of dollars’ worth of short-term notes to buy longer-dated government bonds.

The Fed’s operation helped lower longer-term borrowing costs at a time when short-term interest rates were already close to zero — but was far larger than Bessent’s intervention. (…)

“Bond buying can target pinch points, but doesn’t change the debt trajectory,” said Dec Mullarkey, head of investment strategy and asset allocation at SLC Management. “Debt markets are repricing for the growing fiscal risks.”

Some also think the optics of Bessent directly intervening in the Treasury market to influence borrowing costs could itself prompt a further debt sell-off, raising yields further.

“Some investors may be thinking that if the administration is resorting to yield curve control, maybe the administration feels like inflation is going to be higher for longer,” said Michael Strain, director of economic policy studies at the American Enterprise Institute.

“And that’s going to put upward pressure on longer-term yields.”

Iran vows ‘devastating’ response as US threatens toughest ever economic hit

Iran said on Friday that its response to any new U.S. threats would be “devastating” after Washington pledged to ​impose the toughest financial penalties in history with the aim of toppling the Iranian leadership.

U.S. Treasury chief Scott Bessent’s comments on Thursday followed a warning from President Donald ‌Trump of economic consequences against any country that provided “any type of lifeline to Iran.” Bessent promised details on Monday. (…)

Iran’s powerful ​parliament speaker Mohammad Baqer Qalibaf, the country’s main negotiator in mediated negotiations with the United States, said Washington appeared to have concluded it could not prevail in its direct ​military confrontation. (…)

“I’m not sure why oil has popped up on this,” Bessent told CNBC. “If we are doing the maximum economic pressure, then that means that likely there will not be a large-scale kinetic restart,” he said, using a term referring to military force. (…)

“It is going to work in Iran ​and we are going to collapse this ⁠regime. It is time for our allies and the rest of the world to make a decision,” he said. (…)

China buys more than 80% of Iran’s shipped oil, according to 2025 data from ​analytics firm Kpler, but engaging ⁠in further economic warfare with Beijing, a major exporter to the U.S. including of vital rare-earth minerals, risks retaliation against Washington.

When asked if the United States could target China for doing business with Iran, Bessent said many conversations were best to have in private.

“Keep in mind that the Chinese get 50% (of their) energy… from the Gulf. So it would do them a big service to get with the program,” he ⁠said.

China’s embassy in ​Washington said “sanctions and pressure do not help resolve the problem”.

“China calls on the relevant parties to take responsible actions ​and resolve the issue through political and diplomatic means,” according to an embassy spokesperson.

Offers of Iranian crude to Chinese buyers have already declined and prices have jumped this week as the U.S. blockade on Iranian ports — reimposed on July 13 — has ​cut Tehran’s shipments, trade sources told Reuters.

America’s capital crunch: Soaring debt collides with AI spending spree

(…) President Trump said in 2016 that he could eliminate what was then roughly $19 trillion in national debt within eight years. On Tuesday, the debt crossed $40 trillion, after growing by $3 trillion in the past year alone. (…)

Treasury must refinance $9.7 trillion in debt coming due this fiscal year while covering a deficit the Congressional Budget Office now projects at roughly $2.1 trillion.

Old debt comes due, Washington replaces it with more expensive debt, and the resulting interest bill feeds future deficits.

• CBO projects annual deficits will average $2.4 trillion through 2036, pushing debt held by the public to 120% of GDP — above the record set after World War II.
• The U.S. has already spent $963 billion on interest in the first 10 months of this fiscal year, $200 billion more than it spent on the military over the same period.

For years, Silicon Valley’s AI buildout was financed almost entirely with cash. Now Big Tech is becoming one of the biggest new forces in global debt markets.

• Bond sales by the “hyperscalers” building AI infrastructure are on pace to roughly double in 2026. Goldman Sachs projects debt will fund more than a third of their AI spending by 2027.
• Nvidia is working with BlackRock, Goldman Sachs, KKR and other Wall Street giants on plans to marshal more than $500 billion for AI infrastructure.

Nine major tech companies have already spent roughly $600 billion on capital projects over the past year.

A Wall Street Journal analysis found they have another $3 trillion in future commitments, mostly tied to AI, that aren’t yet reflected on their balance sheets.

• Social Security’s retirement trust fund is projected to run dry in late 2032, during the final months of the next president’s first term.
• Medicare’s hospital trust fund follows in the second quarter of 2033.

Trump and Elon Musk promised to break Washington’s addiction to debt without forcing Americans to swallow painful sacrifices.

• Musk launched DOGE with ambitions of cutting as much as $2 trillion from federal spending. Its final public tally claimed just $215 billion in savings — barely a tenth of that goal.
• A federal audit released this month found billions in unsupported or inaccurate savings claims, including $27.4 billion tied to contracts that were still active. (…)

Few problems loom larger over America’s future than its colossal debt burden. Yet few are treated with less urgency by the politicians who will have to confront it.

Tackling the budget deficit would have been wiser than fighting the trade deficit. Another failed fight.

Federal interest expense rose from 2.5% of GDP to 3.8%. CBO (optimistic) data say interest expense will double in the next 10 years to $2.1T. If GDP rises 5% per year, interest expense will eat nearly 4.5% of GDP in 2035.

Economists Boost US Growth Forecasts for Third Quarter

Economists raised their forecasts for US economic growth in the third quarter, reflecting upward adjustments to consumer spending as well as private investment that includes capital outlays on artificial intelligence.

Gross domestic product is now seen expanding at a 2.5% annualized rate in the third quarter, up from 2% in the previous survey, according to the latest Bloomberg News monthly survey of economists. Quarterly GDP projections through the end of 2027 were little changed and confined to a narrow 2%-2.2% range.

The personal consumption expenditures price index, excluding food and energy, is seen averaging 3.2% this year before cooling to an average 2.5% in 2027 on an annual basis.

With the so-called core PCE price metric showing moderating inflation, economists expect the Federal Reserve will keep interest rates unchanged through July of next year.

“Tech/AI related investment is the main factor driving higher business capex, while high-income household spending is responsible for the majority of consumer spending growth,” said James Knightley, chief international economist at ING.

According to Bloomberg Industry analysts, total capital expenditures related to artificial intelligence may exceed $1 trillion this year and $1.5 trillion in 2027.

In addition, “cooler jobs and inflation data and a sense new Fed Chair Kevin Warsh was less inclined to raise rates has seen pricing become less aggressive, with a September hike now seen as less than a 50% call,” Knightley said.

An escalation in the Iran war poses a risk to the outlook by threatening to push oil and consumer prices higher while potentially weighing on growth. With inflation above the Fed’s 2% target, an extended supply shock would make policymakers’ job harder.

Economists also trimmed their estimates for average payroll growth this year to 66,000 a month and see similar monthly job growth in 2027.

From the horses’ mouths (via The Transcript):

The US consumer:

• “What we’ve seen so far is what we’ve seen all year long, and that is we’re operating in what we would describe as a K-shape economy, where the higher income consumer spends and they’re spending on innovation and they’re spending on things to modernize their home and the lower income consumer is a little bit more cautious and a little bit more uncertain based on all of the macro factors that we all know so well. And we haven’t seen anything different in the start of this quarter that we saw in the first quarter.” – Lowe’s Companies CEO Marvin Ellison
• The categories that are related to big-ticket discretionary are those categories and merchant divisions that sort of continue to lag. And that’s what we’re dealing with, that’s what we’re managing through, and that’s where we’re trying to lean in and provide additional value where we can.” – Lowe’s Companies CFO Brandon Sink
• “As reported in our release, net sales for the month came in at $23.12 billion, an increase of 10.7% from $20.89 billion last year. Reported comparable sales for the month were as follows: U.S., 10.3%; Canada, 4.2%; Other International, 6.0%; total company, 8.9%; digitally-enabled, 17.7%…Our comp traffic or frequency for the month was up 3.6% worldwide and 3.3% in the U.S.” – Costco Wholesale Director of Financial Planning Andrew Yoon
• “In the U.S., our largest market, economic growth and our industry are being driven by high levels of employment, rising household wealth, resilient consumer spending, strong corporate profits and huge amounts of investment going into technology, energy, manufacturing and other areas of the economy. With this economic momentum expected to continue, we are confident in the underlying factors driving our U.S. RevPAR growth.” – InterContinental Hotels Group CEO Elie Maalouf
• “…the experience economy is sort of like what is it at the highest level, it’s really touching on this overarching concept that consumers are favoring experiences and that the allocation of especially affluent and aspirational consumers towards experiences is something that has an above-average discretionary growth rate tied to it.” – Shift4 Payments CFO Christopher Cruz

China consumer:

• “Basically, as I said earlier, that the macro is still bad, sloppy, and people are cautious in spending.” – Sohu.Com CEO Charles Zhang
• “…the China consumer and therefore, advertising market remains choppy, and there are some economic or consumption headwinds that may have an impact on advertising trends” – Tencent CSO James Mitchell
• “And importantly, while not every sector of the economy is doing very well, like the residential sector is still in a slow but certain turnaround, but it’s slow. In the residential sector, travel is strong. Domestic trips are up; international inbound now to China is a growing segment.” – InterContinental Hotels Group CEO Elie Maalouf

The Art of the Self-Deal Thoughts on how Trump-era corruption is affecting Americans as a people.

I’m thinking about the deeper effects of governmental corruption in the Trump era, and why it leaves many not only indignant but uneasy. I suspect it’s doing something to us as a people. The thoughts were prompted by a poll this week from Reuters/Ipsos, which Reuters headlined “Most Americans Believe Trump Has Inappropriately Profited Since Returning to Power.” It reported that 69% of respondents see his personal business interests as influencing presidential decisions. Two-thirds of independents, half of Republicans and 9 in 10 Democrats shared that view.

Republicans, God bless them, were split on whether graft under Mr. Trump has gotten worse or better or stayed the same, which makes that polling question a case study in how bright people are capable of not seeing what they don’t want to see.

We’ll quickly posit what we mean by Trump-era corruption. I see two general areas, personal enrichment and the use of government to satisfy private goals. (…)

An odd thing about all this is the absence of furor. There is no broad public outcry. Why? Because corruption is a constant and “the other side is dirty too.” Because the scandal threshold has skyrocketed. President Trump walked into history dragging a long tail of litigation, accusation and lawsuits behind him. He never sold himself as a man of moral rectitude, and most supporters didn’t think that’s what they were buying. Jimmy Carter’s shaking down the system to see what coins fall out would have been news, Donald Trump’s doing the same is Tuesday.

And there’s the sheer scale: The extraordinary becomes ordinary through repetition; scandals add up and become a blur, not a call to action. But the country pays a cost for all this. Institutionally, everything happening today sets a precedent. Every abuse we accept widens the range of possible misbehavior for the next administration.

Corruption is more dangerous, has a more deteriorating effect, than bad policy. Bad policy can be reversed. Corruption works its way into a system and changes its nature. (…)

But I suppose the larger threat of governmental corruption is that it hurts the public’s morale, its sense of seeing itself as a moral actor to whom politicians have to answer. Our entire system of government assumes a citizenry that polices its politicians, that says “You can’t do that, this office isn’t yours, your powers were lent to you for public purposes.” If the public shrugs and looks away, Americans will lose the habit of thinking of themselves as entitled to a clean government. And they’ll have to admit they surrendered their own views to the views of the tribe.

It is the public’s role to uphold republican standards. In the past, a politician caught selling an office, taking money from interested parties, using governmental machinery for personal revenge was supposed to fear not only legal action but disgrace.

Citizens derive a certain dignity from believing that we enforce the rules. It reminds them who’s in charge: them. You’re giving up a lot when you give that up. (…)

As always, the whole world is watching. What it has seen lowers the esteem in which it formally (if grudgingly) held Americans. It embarrasses us before the world. It hurts our heart a little. We were the morally rectitudinous Doughboy GI Marshall Planning JFK and Ronnie People who made the wall come down. We did our best each generation to be equal to our reputation, or at least to have some class. There are foreign-policy implications to all this. Some day we’ll need friends and see only the satisfied spite of the previously jealous.

Nothing good comes from this. When corruption is allowed, it governs not today but tomorrow too.

Bond vigilantes, Bessent, FOMC, Warsh, Trump, Kennedy Jr.:

Scott Bessent, the man of all situations (lastly trying to bring oil down saying an “Hormuz deal is imminent” on Aug. 4), is now trying his Treasury Secretary suit to warn bond vigilantes that enough is enough. If this is another war, he’d better get more and better ammo than a couple of $billions.

The same day, the Fed Minutes revealed that “price pressures appeared broad-based”, so much that many said that the Committee “should adopt a more restrictive policy stance”. The minutes showed no appetite for rate cuts, noting that inflation risks remain “skewed to the upside” and that “successive supply shocks have repeatedly delayed the expected return of inflation to 2 percent in recent years.”

Add that participants judged that the economy “continued to expand at a solid pace” thanks to “strong business investment and resilient consumer spending.” AI in particular is seen as “pushing up aggregate demand” affecting investment, labor markets, inflation, and financial stability, for many more years.

Interestingly, while the war with Iran, tariffs, and AI-related demand pressures were cited as causes of inflation’s persistence, the Minutes make zero mention of what’s really bothering the bond vigilantes: the soaring and uncontrolled budget deficit and its impact on overall demand and inflation.

Bessent can talk and tweet all he wants, like his boss in Iran he has weak and limited ammo and no clear plan against a powerful adversary determined to hold its ground.

Announcing the doubling of the amount of LT bonds that the Treasury can buy back (isn’t that monetary policy, like QE or Operation Twist?), he clashes with Kevin Warsh who wants the Fed to shrink its balance sheet.

If this was meant to be only a symbolic warning, it may actually confirm that the Trump administration (as well as Congress) has no plan, let alone any resolve, to address the fiscal cancer everybody is now conscious of. (BTW, the higher buyback limits will begin September 9 and remain in place through the rest of the refunding quarter ending November 4, 2026. The elections are Nov. 3.)

Foreigners and the forex market are taking note, another one after the August 3 joint U.S.-Japan currency intervention when Bessent opted to sell euros and not USD to buy Yens (without prior warning to the ECB).

Speaking of cancer, Moderna yesterday announced that its mRNA-based research for a cancer vaccine has yielded favorable results.

Recall that the Trump administration and Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. shifted heavily against mRNA research in 2025. What Trump once called a “medical miracle” got defunded by $500M after Kennedy’s “comprehensive review” of BARDA (Biomedical Advanced Research and Development Authority) investments concluded that “mRNA technology fails to protect effectively and poses more risks than benefits”.

What a day!

Trump Threatens Iran With ‘Economic D-Day’ As the war nears its six-month point, the president says he would unleash the ‘most crushing economic operation ever taken’

Trump said on Wednesday evening he would launch a major economic campaign against Iran and any entity that does business with the regime. The president said it would be “the MOST CRUSHING ECONOMIC OPERATION EVER TAKEN AGAINST ANY COUNTRY!” Trump didn’t say what specifically the U.S. will do in addition to the heavy sanctions that are already on Tehran.

“I am also announcing that ANY country that allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran will itself face TREMENDOUS Economic Consequences,” Trump posted on Truth Social. “Oil smuggling, swap lines, cash transfers, exchange houses, ship registries, front companies—It all needs to stop NOW. You know who you are.” The president called on U.S. allies to support his effort to isolate Iran.

China is Iran’s largest trading partner and the Islamic Republic has economic ties with Middle East neighbors, but trade with Europe is small due to years of sanctions and other restrictions. As part of the U.S. strategy to squeeze Iran economically, the United Arab Emirates said late Tuesday that it has suspended financial and economic transactions with Iran, potentially threatening Tehran’s access to a major source of imports and a financial back door to the world. (…)

“We have very draconian sanctions and we’ll see what happens,” Trump told reporters. “It’ll either be extremely good and oil prices will drop like a rock, or we’ll continue doing exactly what we’re doing.”  (…)

“Watch this space for more announcements coming next week because we are going to apply measures like have never been seen in the history of the economic isolation of a country,” Bessent said on Newsmax Wednesday. (…)

Senior Trump adviser Jared Kushner said on Monday that talks between the U.S. and Iran through backchannels were “positive and active,” even as Iran denied any communication and Trump said there were no ongoing conversations. (…)

Senior administration officials say Iran’s economic desperation could lead to a breakthrough, and the president has said he believes the U.S. Navy blockade targeting Iranian shipping and ports has been effective. But The Wall Street Journal reported Iran’s hard-line leaders are prepared to dig in their heels for a continuation—and escalation—of the war.

• China Says Trump’s Economic Warfare Won’t Solve Iran Crisis

(…) Beyond the economic impact, Trump’s threats risk further straining ties between Washington and Beijing ahead of his planned meeting with Chinese leader Xi Jinping next month.

China does not recognize unilateral sanctions, but its state-owned entities generally stay away from blacklisted oil. Its biggest state banks also have a history of complying with US sanctions against Iran, North Korea and even top officials in Hong Kong, in order to avoid losing access to the US dollar-clearing system.

Washington has already sanctioned some Chinese teapot refineries and firms since the US launched the war against Iran in late February. But so far, the US has stopped short of targeting the major Chinese banks that finance the trade.

In May, China ordered domestic companies not to comply with US sanctions on five refiners, while its biggest banks were caught between Beijing’s directive and the risk of losing access to the US financial system. (…)

“There may be some retaliatory measures, but most likely they will quietly adapt and find a new system, rather than completely give up on doing business in Iran,” said Figueroa.

• Choking Iran’s Economy Is the Least Bad Way to End the War

Over the years, I’ve witnessed at first-hand countries going literally broke under US economic pressure: Iraq, Venezuela and Cuba. The scenes I saw in Baghdad, Caracas and Havana were all very similar. The national currency became worthless, inflation skyrocketed and unemployment spiraled higher. And yet, American economic sanctions alone failed to force political change.

US President Donald Trump is betting he can break Iran economically and, in the process, achieve the political concessions he wants — all in record time. But historical precedent suggests he’s wrong. The Islamic Republic has demonstrated many times before its deep capacity to endure financial suffering, and its pain threshold is likely even higher now that the threat is existential. With Trump and his brother-in-arms, Israel Prime Minister Benjamin Netanyahu, running short of options to end the war they started without much of a plan, the route of economic asphyxiation is probably the least bad plan. Needless to say, “least bad” is far from “good.” (…)

Trump doesn’t need the regime to collapse; he just needs sufficient leverage at the negotiating table, hurting Iran enough for Tehran to soften its demands for ending the conflict.

To work, however, Trump needs to outlast Iran economically — and oil is the key. If the White House can keep crude below $100 a barrel or thereabouts, it has a chance. Right now, West Texas Intermediate, the US oil benchmark, is changing hands at around $85 a barrel. For that to continue, enough barrels need to keep flowing via the Strait of Hormuz. China needs to help too, by keeping its oil imports well below prewar levels. So far in August, both elements are working in Trump’s favor; there’s no guarantee, however, that the situation will persist.

Iran is, undeniably, hurt, but is it “broke” as Trump claims? It surely feels like it. Its economy is on track to suffer the biggest annual contraction since the nadir of the Iran-Iraq War in the mid-1980s. Inflation is running well above 50%, the highest annual rate since records start nearly 70 years ago. Worse, the cost of food and other necessities has already doubled from a year ago. Its currency, the rial, is worthless. In the black market, the exchange rate has collapsed to a record low of about 1.85 million rials to the dollar; five years ago, roughly 50,000 rials were enough to buy a greenback. (…)

But the encirclement isn’t the wall of steel Trump talks about. Geography is a powerful ally of the Islamic Republic. Over 5,500 kilometers (3,418 miles) long and neighboring seven countries — Pakistan, Afghanistan, Turkmenistan, Azerbaijan, Armenia, Turkey and Iraq — the Iranian border significantly exceeds the distance from New York Ciry to Los Angeles, and is too extensive and too porous to be closed completely. Rail links are burgeoning. Via the Caspian Sea, Iran shares a maritime border with Russia and Kazakhstan, too. Moscow has already helped Tehran to stay afloat via that route. (…)

Earlier this week, Mohammad Bagher Ghalibaf, the Iranian parliament speaker and top negotiator, said on social media that while the White House thinks that “squeezing Iran harder” will force concessions, US Treasury Secretary Scott Bessent lacks the competence to succeed: “Stop waiting for the clown crew to pull a rabbit out of their hat.” (…)

Iran is a huge country, with nearly 90 million people who’ve endured decades of hardship. On a per-capita basis, it’s poorer than it was 40 years ago. Unsurprisingly, the population has revolved against its leaders multiple times over the years. The best hope for Trump is that the economic pressure creates fear in Tehran that domestic social unrest is approaching the melting point once again. Hope, though, rarely works as a strategy.

• China Buys Saudi Crude in Rare Tender as Imports Stay Muted

State-run refiners PetroChina Co. and Sinochem Group, along with Unipec — the trading arm of Sinopec Group — and private processor Rongsheng Petrochemical Co., bought a combined 10 million barrels of Arab Medium and Heavy grades in a tender, said traders familiar with the matter. The oil is for prompt loading.

Separately, refiners including Zhenhua Oil Co. have been allocated at least 14 million barrels of crude for loading next month by state-run Saudi Aramco under annual contracts, the traders added, asking not to be identified as they’re not authorized to speak to the media.

The market is keenly watching for any sustained rebound in buying from China, along with a resumption of stockpiling, after the world’s biggest importer cut its crude deliveries and reduced refining to cushion the impact of the Iran war. The pullback has helped to prevent a spike in oil prices. (…)

In the tender, Aramco offered spot supplies of sulfur-rich crude from locations outside of the Strait of Hormuz for loading as soon as this month. The grades are produced within the Persian Gulf, suggesting the kingdom may be finding ways to move more barrels through the waterway. (…)

Pre-war, the Asian nation typically took around 40 million to 50 million barrels a month from Saudi Arabia.

Still, Chinese refiners have shown a growing appetite for Middle Eastern crude. Rongsheng and other buyers have recently purchased Iraqi barrels, while Abu Dhabi National Oil Co. has issued a ninth tender for supplies. Adnoc has been among the most successful producers at keeping oil flowing out of the Persian Gulf during the conflict.

Walmart Posts Sluggish Sales With Slowest US Growth in Years

Walmart Inc.’s quarterly sales fell short of expectations, a rare miss that’s likely to stoke concern about the leading big-box retailer decelerating alongside a slow-growing US economy.

Sales at US stores open at least a year, excluding fuel, rose 2.6% in the second quarter, shy of the lowest analyst estimate compiled by Bloomberg. That rate of growth — hindered in part by pricing pressure in its pharmacy business — is the slowest in more than six years.

Walmart flagged that its pharmacy business weighed on US sales due to federal drug price negotiations that have led to lower prices. Shoppers spent less per trip during the quarter that ended in July compared with a year ago, though the number of transactions stayed at similar levels. E-commerce sales rose.

Despite difficulties in the latest period, Walmart raised its full-year guidance for sales and adjusted operating income. The company began receiving tariff refunds in the second quarter, which management vowed to put toward lowering prices. (…)

How much is AI contributing to US economic growth? We believe AI accounts for a third of economic growth in 2026

From ING:

(…) Not all tech investment spending is on items that are made in the United States. Imports subtract from GDP, and we should take account of that when calculating the ‘true’ contribution of tech/AI investments. Imports of technology-related items have tripled in value over the past two years to $60bn per month.

US exports have also increased, but on a far more modest scale, from $9bn per month to $17bn per month. The result is that the trade deficit in computers, peripherals and semiconductors has risen from $20bn per month to more than $40bn per month.

One mitigation is that prices of chips and semiconductors have surged in recent quarters due to strong demand and limited supply, so we need to deflate the nominal dollar values in order to calculate the ‘real’ growth in imports. We chose to use the PPI measure of ‘electronic components and accessories’.

Net trade $bn – US exports of technology products less imports

Source: Macrobond, ING

We’ve put together a series of charts showing different ways of calculating the contribution to YoY% real GDP growth.

The first shows the broadest measure of ‘tech’ investment – total information processing, data centre and software investment – without subtracting imports. This categorisation has headline investment accounting for 50.2% of YoY GDP growth in second quarter 2026, with 46.6% being the average contribution to YoY GDP growth over the past four quarters.

If we were to take a stricter definition and include only computing, peripheral and software investment, then it follows a very similar trend to the chart below, but the result is a 44% of GDP growth contribution for second quarter 2026 with a 43.3% average over the past four quarters.

Broadest measure: Tech GDP contribution – All information processing, software & data centre construction (YoY% growth)

Source: Macrobond ING

Then if we take that ‘core’ measure and subtract net imports of computers, peripherals and semiconductors, deflated by ‘PPI electronic components & accessories’, then we get a more modest 36%, which is actually slightly lower than the 37% average contribution over the past four quarters. We view this as the fairest measure of tech investment we can currently calculate.

Given the issue surrounding uncertainty over what is truly AI/data centre investment and what is, what we might term, legacy tech investment, we suspect there is some over-estimation in these results. However, given the acceleration in tech capex growth since the release of ChatGPT we would only revise down the contribution marginally. As such, we believe that the overall tech investment rollout accounts for around a third of the current YoY rate of US GDP growth.

Narrowest measure: Tech contribution to GDP – computer, peripheral & software investment, data centers less net imports (YoY% growth)

Source: Macrobond, ING

While AI’s impact on the economy is significant, the impact on the jobs market looks modest currently. The Federal Reserve’s Beige Book, an anecdotal survey on the state of the US economy, suggested in April that “while most Districts indicated that AI had not yet significantly impacted overall staffing levels, some noted that AI-driven productivity improvements had enabled many firms to delay or reduce hiring”.

LinkedIn data suggests entry level hiring for graduates has fallen 17% since 2019, while the Bureau for Labor Statistics reported that the unemployment rate for recent graduates (aged 20-24) was 9.7% in July, versus the unemployment rate for all graduates, which is only 2.7%.

The Challenger, Gray and Christmas report on hiring and layoffs suggests that Artificial Intelligence has been the leading reason for US job lay-offs for the past five consecutive months, cited in 112,713 job cut announcements, or 24% of the total. They suggested that tracking the impact of AI on the jobs market is likely to become increasingly opaque since ‘naming AI in a layoff announcement can win over investors while pushing current and prospective employees away’. They argue that regulatory changes may also make companies more careful in how they frame announcements.

Challenger Report: Cumulative job cuts since April 2025 by reason (000s)

Source: Macrobond, ING

AI enthusiasm is also contributing to GDP growth via consumer spending. Directly through AI token purchases and subscriptions and indirectly via positive wealth effects thanks to the surge in technology company stock prices.

Right now, AI subscriptions account for a tiny proportion of overall consumer spending. Proprietary client spending data from Bank of America and PNC Bank suggest only around 2-3% of American households are spending money on these tools, with a typical monthly spend of $20-30. That is dwarfed by internet, TV and cell phone subscriptions right now, but over coming years that is likely to change, and it will start to make a meaningful contribution.

Instead, it is the wealth effect that is having the largest impact on consumer spending today.

Chat GPT was released on 30 November 2022 and, since then, the NASDAQ stock index has risen 130% while the S&P 500 is up 90%. This has contributed to household holdings of financial assets rising from $109tn to $142tn over that three-and-a-half-year time frame. Ownership is heavily skewed towards the top 20% of households by income, who, according to Federal Reserve data, hold 72% of the wealth of America. The bottom 60% of households by income hold merely 15% of its wealth.

In an environment of weak consumer confidence and flat-lining real household disposable incomes, this AI-driven wealth surge is likely to be a key factor maintaining the K-shaped consumer narrative whereby high-income households are the driving force behind consumer spending today.

Calculating a number for what extra consumer spending is due to AI wealth gains is difficult. A 2025 Federal Reserve paper suggested that because of the increased concentration of wealth towards higher income groups, the propensity to consume out of wealth has dropped markedly.

For the top 20% of households by income, they estimate 0.8 cents of every dollar increase in wealth is spent. For the other 80% of households, who have seen far more modest increases in wealth, that number is closer to 7.5 cents per dollar increase in wealth.

That paper estimates a weighted average of 2.6 cents in the dollar until 2020 versus 3.5% in 1990-2005. But with further concentration of wealth in the top 20% of households by income over the subsequent six years, we strongly suspect the number is below 2 cents today and assume 1.5 cents based on that shift in wealth dynamics.

Therefore, $33tn of extra household equity wealth translates into roughly $500bn of cumulative extra spending since fourth quarter 2022. Simplistically, that is around an extra $36bn of consumer spending per quarter ($144bn annualised), equivalent to around 0.65pp of 2Q 2026 consumer spending and 0.44pp of GDP.

Two other charts courtesy of The Daily Shot:

AI-driven computer and electronics production continues to surge, accounting for roughly half of overall manufacturing output growth, while nearly all remaining gains are concentrated in aerospace and other advanced industries. In contrast, lower-value-added manufacturing has stagnated.

Source: @samueltombs, Pantheon Macroeconomics

h/t @samueltombs, Pantheon Macroeconomics

Let’s also not forget that the Russia-Ukraine and US/Israel-Iran wars are clearly helping the US economy.