● The Original Error: Why Macroeconomics Keeps on Failing
Mathew Coakley
Summary via publisher (Atmosphere Press)
Why are there recessions? Why can firms earn persistently high profits? Why do wages depend so dramatically on where people live? The Original Error argues that these are not separate puzzles. They arise from a foundational mistake in how economics understands production. That mistake has endured for two centuries, surviving successive revolutions in economic thought even as the discipline made genuine advances. Philosopher Mathew Coakley traces its path through that history to explain why increasingly sophisticated macroeconomic models continue to encounter the same unresolved problems.

● Princes and Thieves: Jared Kushner and Mohamed bin Zayed’s Secret Plot to Remake the Middle East
Matthew Cole
News report via CBS News
Jared Kushner is pushing back on a report involving a hacked iPhone, international spies and billion-dollar transfers from foreign governments.
An upcoming book by journalist Matthew Cole claims Kushner, who is President Trump’s son-in-law, had access to more than $2 billion in “slush money funds” from Middle Eastern leaders in an attempt to influence U.S. foreign policy.
An excerpt of the book released Thursday details allegations encompassing Kushner’s time as a senior White House adviser during the first Trump administration, which included a lead role in U.S. policy in the Middle East. Kushner had a major hand in negotiating key foreign policy deals that involved Israel, the Gulf states, China and Russia during that period.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. Thank you!

The good news is that there is still room for debate about inflation’s upward momentum. Although prices have increased this year, largely because of the supply-side energy shock stemming from the Iran war, the move so far has been relatively moderate, leaving the outlook open to interpretation. By The Capital Spectator’s reading, however, the trend is approaching a tipping point, and any further acceleration would likely push inflation into territory that warrants heightened concern.

A key input into this analysis is inflation sentiment. Modeling this phenomenon is challenging because there are numerous ways to define and measure expectations and results can be noisy and open to interpretation. For a clearer view of how this component of inflation risk is evolving, I track several market- and survey-based indicators and combine them into a composite measure (see the list of components below).

Although measuring inflation expectations is inherently imprecise, aggregating data from multiple sources can help reveal the underlying trend. On that score, the recent rise in the Composite Index is beginning to look worrisome.

October data is still incomplete, but the figures available so far suggest that the Composite Index will reach its highest level in a year once the final updates are published. Absent the Middle East conflict, this trend would be less concerning and might even be dismissed as short-term noise. But with no end in sight to the Iran predicament, the recent increase in inflation expectations raises the possibility that higher prices could become embedded in household and business decision-making, creating a self-reinforcing cycle in which expectations of inflation help generate more inflation.

A key reason to monitor the Composite Index is that it incorporates measures of inflation expectations, which can influence economic behavior before they appear in official inflation data. If consumers, workers, and businesses increasingly expect higher inflation, they may spend sooner, demand larger wage increases, and become quicker to raise prices. As a result, a rising Composite Index may signal that inflation expectations are becoming embedded in the economy, increasing the risk that higher inflation ultimately shows up in formal price measures.

One reason to reserve judgment on the rise in the Composite Index: Much of the increase is related to sentiment date. The implied inflation forecasts from the Treasury market, by contrast, is still mild, although starting to tick higher. That makes the bond market an especially important indicator to watch in the weeks ahead, as a further rise in market-based inflation expectations would provide a stronger signal that investors are beginning to price in more persistent inflation pressures.

The rise in the Composite Index would be less concerning if actual inflation were stable. But as September’s update of the Federal Reserve’s preferred inflation gauge reminds us, the latest numbers continue to flash warning signs.

The personal consumption expenditures (PCE) price index rose 3.6% in September, the highest annual rate since May. Core PCE, which excludes food and energy and is widely viewed by Fed officials as a better gauge of underlying inflation pressures, also edged up to 3.1%, a four-month high. Both are well above the Fed’s 2% target and continue to show signs of moving further away from that objective.

Although the increase in prices remains relatively modest, the direction of travel is concerning in the current environment, especially as inflation expectations appear to be firming and disruption and risk for global energy supplies persists. Taken together, the trend in sentiment and the trend in actual inflation suggest that inflation risks are becoming increasingly difficult to dismiss.

The next several months will be critical in determining whether the recent pickup in inflation proves to be a temporary consequence of geopolitical turmoil or the start of a more persistent inflationary trend. The answer may also reveal whether the Fed’s decision to pause rate hikes earlier this week was a well-timed display of patience or the first step toward a policy mistake that ultimately requires a more hawkish response.

The Composite Inflation Index uses seven inputs – four survey data sets and three market-based estimates:

* University of Michigan 1-year consumer inflation expectations
* NY Fed consumer inflation expectations for 1-, 3-, and 5-year horizons
* 10-year Treasury breakeven rate
* 5-year Treasury breakeven rate
* 5-Year, 5-Year Treasury Forward Inflation Expectation Rate

Using Warsh’s comments from yesterday’s press conference as a guide suggests there’s a case for following through on September’s rate hike with another round of tightening. In his opening statement at Wednesday’s press conference, he said that “economic activity is expanding at a strong pace” and has “strengthened,” while “job gains have kept pace with the workforce.” He also noted that “the jobless rate is lower than a year ago, and payroll growth is noticeably above last year’s pace.”

At the same time, “inflation remains elevated” and is still “too high.” He added that “Americans, of course, are still dealing with inflation that has been running above the Committee’s objective for close to six years.” Lest there be any doubt, he asserted that “it’s our responsibility to get inflation down.”

It all adds up to a persuasive case for another rate hike. Warsh’s explanation for why the Fed punted ultimately boils down to a vague rationale that was neither persuasive nor satisfying: “The Committee believes that the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2 percent goal. The Committee will deliver price stability.”

The question is whether the gap between now and the next FOMC meeting on Dec. 9 will give inflation more room to run, forcing the Fed into a stronger policy response to play catch-up.

“Waiting is not costless,” notes Claudia Sahm, a former economist at the Fed who is now the chief economist at New Century Advisors. Speaking with The New York Times she observes: “If they wait and find out that those upside risks to inflation they were worried about are not risks but reality, then the Fed will have to do more.”

The market is pricing in high odds of a quarter-point rate hike in six weeks, based on Fed funds futures. Meanwhile, the Cleveland Fed’s nowcast for the upcoming October consumer inflation report points to year-over-year change in headline CPI holding steady at 3.7%, while core CPI is projected to edge down to 2.5% from 2.6%.

The bond market still appears willing to give the Fed the benefit of the doubt for pausing rate hikes. The policy-sensitive 2-year Treasury yield edged lower yesterday, although at 4.71% it continues to signal that investors expect additional tightening in the near future.

By contrast, the 10-year Treasury yield was somewhat less forgiving, posting a modest increase. The benchmark rate’s recent firming following a sharp retreat from its peak suggests the market may be preparing to resume a less tolerant view of dovish leanings within the Fed.

The case for additional rate hikes remains credible, but several wild cards continue to cloud the outlook, most notably the Iran war. The conflict remains a key driver of this year’s reflationary pressure through the energy-supply shock it unleashed. It’s widely understood that if the war ended tomorrow, much of the uncertainty surrounding monetary policy would quickly fade as inflation risk fell. But the odds still appear low for even a durable stalemate, much less a lasting peace.

As The Economist reports, the turmoil stemming from the Iran war is being compounded by the escalating rivalry between Saudi Arabia and the United Arab Emirates, fueling instability across the Red Sea corridor and the Horn of Africa. Taken together, these developments continue to undermine the prospects for near-term normalization in regional energy exports by leaving critical maritime chokepoints vulnerable to attack.

A gray zone of uncertainty is likely to keep markets on edge while complicating the central bank’s next moves. Until the fog of war lifts, the Fed’s inflation fight will remain hostage to forces beyond its control.

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A stronger-than-expected GDP reading could reinforce concerns that underlying price pressures remain sticky while raising expectations for near-term Federal Reserve rate hikes. With those issues in mind, investors will be closely watching the Federal Reserve today, which is widely expected to leave interest rates unchanged.

That leaves Fed Chairman Warsh facing a delicate balancing act at today’s press conference, where he will likely be pressed on the decision to hold rates steady despite his comment last month that “the plain fact is that inflation is too high and has been for too long.”

Earlier this month Michelle Bowman, the Fed’s vice chair for supervision, said “Inflation remains above our goal,” but “We have some time to wait and see how financial conditions evolve before we take more action.”

Meanwhile, tomorrow’s Q3 GDP report still appears set to show a solid pickup in growth, based on the median estimate for a set of nowcasts compiled by The Capital Spectator. Output is projected to increase at a 3.3% annualized pace during the July-through-September period, a notable improvement from Q2’s 2.2% gain.

This week’s release of September data for the Chicago Fed National Activity Index (CFNAI) supports the case for anticipating a roughly 3% GDP growth in the third quarter. Based on 85 indicators spanning production, employment, consumption, housing, and business activity, the index provides a broad, hard-data snapshot of the economy.

Third-quarter growth appears to have been driven by AI infrastructure spending, healthy consumer demand, and strong business investment in areas such as software and equipment. The details will matter as much as the headline number since broad-based gains in consumer and business spending would signal a healthier expansion than growth driven mainly by trade or inventory swings.

Even so, the headline GDP figure may overstate the economy’s underlying momentum. Investors should look beyond the top-line number, especially as real wages have softened and growth remains uneven across households and businesses.

Another key part of tomorrow’s report will be the inflation data embedded in the GDP release. A strong growth number combined with firmer-than-expected price pressures would reinforce concerns that inflation remains stubbornly elevated, complicating the Fed’s policy outlook. By contrast, solid growth alongside cooling inflation would strengthen the case that the economy can continue expanding without igniting a renewed inflation problem.

A simple model that uses unemployment and consumer prices to estimate a neutral federal funds rate suggests that the Fed’s current 3.75%-4.0% target range is appropriate for current conditions. The question, however, is whether the central bank should act more proactively to address the risk that inflationary pressures will continue to build in the near term.

Fed funds futures are pricing in high odds for no change tomorrow. Meanwhile, the policy-sensitive 2-year Treasury yield, even after a moderate decline this month after spiking higher in September, continues to reflect hawkish sentiment by trading well above the Effective Fed Funds rate.

Lurking in the background is recent Fed history and the memory of its slow response to the 2021-2022 inflation surge, which lifted year-over-year consumer inflation from roughly 3% in early 2021 to a peak of 9% by June 2022. The central bank did not begin raising rates until March 2022, prompting critics to argue that policymakers were asleep at the switch. That delay arguably allowed inflation to accelerate and reach a substantially higher level than might otherwise have occurred had the Fed moved sooner to contain price pressures.

Rightly or wrongly, that experience continues to loom over policy decisions in 2026, a year marked by a relatively modest but increasingly noticeable increase in inflation.

Earlier in the year, the prevailing view was that rising prices largely reflected the economic fallout from the war with Iran. Under that framework, additional rate hikes appeared premature, if not misguided, on the grounds that monetary policy should generally look through temporary geopolitical shocks.

The challenge is that the energy supply shock triggered by the February attack on Iran is beginning to look less like a short-lived disruption and more like a sustained feature of the economic landscape. Energy markets have adjusted to heightened Middle East volatility and the possibility that oil and gas exports from the region will remain unreliable. One can reasonably argue that the resulting increase in energy prices has already been incorporated into market expectations and that policymakers should avoid confusing higher price levels with an ongoing acceleration in inflation.

There’s some truth in that argument, but it is becoming increasingly difficult to embrace as crude oil prices move higher once again. West Texas Intermediate crude has trended upward in recent weeks and appears poised to retest its recent high.

After eight months of conflict in the Middle East, with no obvious off-ramp in sight, the risk that energy prices continue climbing from already elevated levels invites uncomfortable comparisons with the policy backdrop of 2021-2022. The pushback is that if energy costs rise further, the increase will trigger demand destruction by weighing on economic activity. But the timing is unclear. Indeed, Thursday’s initial estimate of third-quarter GDP is expected to report a substantial acceleration in economic output. The Atlanta Fed’s GDPNow model estimates Q3 growth will strengthen to 3.5% from Q2’s 2.2% — a nowcast that undercuts the argument that the economy is vulnerable and so rate hikes should be avoided.

The near-term prospect of stronger economic growth shifts to focus primarily to prices. With inflation remaining stubbornly elevated, Fed Chair Kevin Warsh faces growing pressure to reconcile his hawkish rhetoric with expectations that interest rates will remain unchanged.

Loretta Mester, former president of the Cleveland Fed, tells The New York Times that “the economics support another rate increase.”

Others disagree, arguing that the Fed should remain patient and avoid responding aggressively to war-related inflation that could reverse if tensions with Iran ease. Even a prolonged stalemate could allow headline inflation to moderate in the months ahead.

The problem is that variations of the “wait-and-see” argument have been circulating since the initial attack, yet inflation at the headline level is turning up. Meanwhile, recent developments suggest the Middle East conflict is broadening, including reports that Yemen’s Houthis have expanded attacks on Saudi Arabia, the region’s dominant energy producer.

The problem is that variations of the “wait-and-see” argument have been circulating since the initial attack, yet headline inflation remains sticky at a relatively elevated level. At the same time, recent developments suggest the Middle East conflict is broadening, including reports that Yemen’s Houthis have expanded attacks on Saudi Arabia, the region’s dominant energy producer.

For Fed Chair Kevin Warsh, the challenge is no longer simply deciding whether inflation warrants another rate hike. It is explaining how a decision to leave rates unchanged remains consistent with his repeated commitment to restoring inflation to the Fed’s 2% target.

At Jackson Hole in August, Warsh warned that “we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

If policymakers stand pat while inflation risks continue to build, investors may conclude that additional policy tightening is merely being postponed rather than avoided, potentially fueling renewed upward pressure on Treasury yields. In that sense, tomorrow’s decision may be less important than Warsh’s ability to convince markets that the Fed remains firmly committed to price stability despite choosing not to act.

As markets head into the final stretch of the year, commodities are still the upside outlier, outperforming the rest of the field by a wide margin. The implication: global strategies that have been light on the asset class have faced headwinds in relative terms against competitors.

The WisdomTree GCC Commodity ETF (GCC) is up nearly 26% so far in 2026, far ahead of the rest of the pack. Stocks in the US (VTI) and foreign developed markets (VEA) are distant second- and third-place performers this year via roughly 12% gains each year to date.

The top-three performers this year continue to outperform the Global Market Index (GMI), an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETFs and represents a competitive benchmark for multi-asset-class portfolios. GMI’s 9.6% return for 2026 is a solid win for index, although it’s running at about half its full-year gain posted in 2025.

Investors are wondering if the recent peaks for markets will mark the high point for 2026. Optimists argue that markets are consolidating recent gains and laying the groundwork before pushing higher. But with several threats to sentiment lurking, it’s clear that investors have turned cautious, a bias that’s likely to persist until trend signals improve.

What’s beyond debate is that this year’s winners continue to trade in a range, at best. Commodities (GCC) have been flatlining for much of the past month.

US stocks (VTI) have been moving sideways for longer, holding within a narrow band since August.

By contrast, equities in foreign-developed markets (VEA) are posting a clear downside bias, which may be an early sign that the correction will persist. Notably, VEA closed on Friday at its 200-day average, the ETF’s weakest technical posture since April 2025. A further drop below this level would deepen concern for the fund’s outlook.

The case for caution on stocks generallly looks reasonable at the moment as investors wrestle with the implications for several risk factors. The inflation question is on the short list, raising questions about whether the recent rise in interest rates marks a peak or a pause in an ongoing upcycle for pricing pressure.

At the same time, investors are increasingly debating whether the massive wave of spending tied to artificial intelligence will ultimately generate earnings growth sufficient to justify current valuations. As AI-related capital expenditures continue to surge, skepticism is growing over the timing and scale of future returns, raising concerns that expectations for the sector may have become overly optimistic.

Meanwhile, the Federal Reserve is expected to keep investors guessing this week by keeping rates steady. The market is pricing in a 90% probability that the central bank will leave its target rate steady at Wednesday’s policy meeting, but a hike is considered likely in December, based on Fed funds futures.

A day after this week’s Fed announcement investors will focus on Thursday’s September data for the Personal Consumption Price Index, which is expected to show that inflation accelerated last month (in line with the previously released Consumer Price Index numbers for September).

Fears of a renewed Iran conflict have resurfaced amid reports that the U.S. and Israel are considering additional military strikes against Iranian nuclear, energy, and missile facilities, highlight concern that a fragile ceasefire could unravel and trigger a broader regional escalation. Investors are particularly focused on the risk of disruptions to Middle East oil supplies and shipping routes, which could reignite inflation pressures and increase market volatility.

In a sign of the renewed tension coursing through markets, the US oil benchmark – West Texas Intermediate (WTI) – has rallied recently and looks set to test the peak reached in the early days of the war.

WTI close above $100 barrel on Friday. Oil is a useful benchmark for gauging investor concern about additional Iran-related fallout. If it continues to approach its previous peak in the spring – roughly the $115-$120 range – that would suggest investors are increasingly pricing in the risk of a broader regional conflict and/or the potential for meaningful disruptions to global energy supplies.

For now, minds differ on the likely path ahead. But no matter the logic of the analysis, the price of oil will be increasingly difficult to dismiss if it climbs further. Oil prices increasingly reflect geopolitical risk rather than underlying supply-and-demand conditions as fears of renewed conflict with Iran intensify. The question is when Middle East events will present a compelling reason to revise the outlook in favor of the bulls.

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● Profit from the Profit: The Past, Present & Future of Dividend Growth Investing
David Bahnsen
Interview with author via Bloomberg’s At The Money podcast
Investors who want to reduce risk but still maintain equity exposure may want to explore dividend equities. David Bahnsen is founder, managing partner and chief investment office of The Bahnsen Group, a national private wealth management firm. His new book is “Profit from the profit: the past, present, and future of dividend growth investing.”

● Anti-Fascist Economics: In Defense of Affordability, Dignity, and Democracy
Isabella Weber
Interview with author via Jacobin
The economist Isabella Weber is best known for her work on what is often called “seller’s inflation,” the ability of firms with market power to hike prices and boost profits during an emergency. During and after the COVID-19 pandemic, Weber was one of the loudest voices criticizing those who treated inflation purely as a product of too much demand, earning the censure of establishment economists in the process. Six years on, her arguments have been largely vindicated. It is clear that while constraints to supply did cause some prices to spike, the resulting cost shocks coordinated corporate pricing that spread inflation across the whole economy.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. Thank you!

One explanation for the decline in yields is that investor sentiment is shifting toward the safe-haven appeal of Treasuries, which is beginning to outweigh inflation concerns and reverse the rise in yields that peaked earlier this month. Under this view, inflation pressures linked to the conflict with Iran, which has kept energy prices elevated, are expected to weigh on economic activity and eventually reinforce a disinflationary trend. As investors increasingly embrace this outlook, demand for bonds is reviving, lifting fixed-income prices and pushing yields lower.

Whether this interpretation proves correct, or premature, should become clearer in the days and weeks ahead. If investors are increasingly focused on potential for slower growth and the disinflationary implications of weaker economic activity, Treasury yields may continue to trend lower. If, however, inflation concerns tied to elevated energy prices and geopolitical risk reassert themselves, the recent decline in yields could prove temporary. Watching key Treasury rates will help determine whether the inflation trade is beginning to unwind or merely taking a pause.

Let’s start with the benchmark 10-year yield, which closed below 5.0% yesterday for the first time in a month. The drop was unusually steep, but for now it is still plausible that the slide represents little more than noise. The uptrend that began with the outbreak of the war remains intact. Note that the 10-year yield briefly fell below its 50-day moving average in late June before rebounding and climbing to new highs. Trading activity in the days ahead should help clarify whether a similar pattern will emerge or if the benchmark rate is poised to continue testing lower support levels.

The posture of the 30-year yield, the maturity most sensitive to inflation expectations, offers a stronger case for reading the latest market action as a tilt toward the safe-haven narrative. The long bond’s yield fell well below its 50-day moving average yesterday, putting it in position to test the support level established in September.

The policy-sensitive 2-year yield, by contrast, has been relatively resilient, holding above its 50-day moving average. The comparatively modest decline to 4.65% on Thursday from a recent peak near 4.95% suggests that the market continues to price in another rate hike by the Federal Reserve. A further decline in the 2-year yield would weaken confidence in that outlook, which could, in turn, encourage additional declines in longer-term rates.

The market’s implied inflation forecast also deserves close attention. The 10-year breakeven inflation rate, calculated as the difference between the nominal Treasury yield and its inflation-indexed counterpart, remains near the middle of its range relative to recent years. Although the spread has widened since the summer, yesterday’s reading of 2.37% is close to its average level in recent history. If the breakeven rate rises from here and approaches its recent peak of roughly 2.50%, it would suggest that investors are pricing in higher inflation expectations, strengthening headwinds for the bond market. By contrast, if the 10-year breakeven rate, along with its five-year counterpart, remains range-bound or moves lower, it would lend support to the safe-haven narrative that favors bonds and drives yields lower.

Energy prices will remain a key factor for the inflation outlook and, by extension, near-term sentiment in the bond market. One potential warning sign is the renewed rise in crude oil prices. Brent, the international benchmark, appears poised to set a new high since the Iran conflict began. A decisive and sustained move above $115 a barrel could trigger a renewed bond selloff, pushing yields higher.

The picture is somewhat less concerning for WTI, the U.S. benchmark, which remains further below its wartime peak. Even so, a continued advance in WTI from the current level would likely put a floor under bond yields in the near term and perhaps spark a rebound in rates.

It’s worth noting that a powerful relief rally in bonds could emerge if the Iran crisis is resolved or begins to evolve into a relatively stable stalemate. For now, however, such a shift in geopolitical risk appears unlikely in the near term as Washington and Tehran issue new threats. As a result, the bond market is likely to remain caught between two competing narratives: persistent inflation driven by energy prices and geopolitical tensions, or slowing growth that ultimately reinforces disinflationary forces and supports lower yields.

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The price of Brent crude, the international benchmark, rose Wednesday to nearly $112 a barrel, just a few dollars below the $115 peak reached in early May. A decisive move above that level would renew inflation concerns and likely reverberate across global stock and bond markets.

The U.S. benchmark remains further below its previous high but has also trended higher in recent weeks. WTI crude traded around $99 a barrel on Wednesday, well below its early-April peak above $117.

Even without a new round of U.S. or Israeli strikes on Iran, the Middle East conflict continues to pose significant risks for energy markets. One of the biggest concerns is the escalating Houthi campaign against Saudi Arabia and its energy infrastructure. On Wednesday, the Iran-backed group launched a drone strike on a Saudi oil field and hit a civilian airport.

The incidents are part of a broader escalation that has intensified pressure on Saudi Arabia in recent weeks and raised concerns that the conflict could spread more widely across the region.

Separately, Iran’s Revolutionary Guard said seven vessels were hit and caught fire in and around the Persian Gulf and Strait of Hormuz today.

“The risk of escalation in the Middle East is back at the forefront of investors’ minds,” said Van Luu, global head of solutions strategy at asset manager Russell Investments.

The latest rally in oil prices comes despite rising crude exports from the region. Reuters, citing Kpler data, reports that flows through the Strait of Hormuz increased to 11.7 million barrels per day this month from 9.75 million in September. October volumes represent about 82% of pre-war levels and are well above April’s low of roughly 1 million barrels per day.

The fact that oil is rising despite the recovery in exports suggests that traders are increasingly focused on future supply risks rather than current supply conditions. Markets appear to be assigning greater weight to the possibility of disruptions to production, transportation, or energy infrastructure across the region.

Reports of a potential new U.S.-Israeli offensive against Iran could add further upward pressure on oil prices. The New York Times, citing U.S. officials, reports that Washington and Jerusalem are preparing contingency plans for a post-midterm military campaign that could target Iran’s energy, nuclear, and military assets.

On another front, traders are monitoring reports that Iranian floating oil storage has effectively been depleted as a result of the U.S. naval blockade. The disappearance of that supply, along with the apparent halt in deliveries to China, suggests that a key source of oil is no longer available to the global market, increasing the risk of tighter near-term supply conditions.

“There’s no more oil to discharge to China anymore,” Kpler’s head of crude oil analysis, Homayoun Falakshahi, tells The Wall Street Journal.

Investors are struggling to determine whether these developments mark the beginning of another sustained energy-price surge or simply the latest bout of geopolitical volatility. Markets may continue to look past the headlines, as they have for much of the conflict. But a decisive move above previous oil-price highs would be harder to dismiss, raising the risk that stocks and bonds begin pricing in a larger geopolitical risk premium as the conflict drags on.

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Housing remains a weak spot, but it has not posed a meaningful recession threat, at least not yet. Part of the reason is that, compared with past cycles, housing accounts for a smaller share of economic activity, while consumer spending and services play a larger role.

Fixed residential investment as a share of GDP fell to 3.6% in this year’s second quarter, the lowest level in more than a decade. Meanwhile, personal consumption expenditures have remained relatively steady in the upper-60% range.

In addition, most homeowners are locked into low-rate mortgages, limiting the financial stress that typically amplifies housing downturns. If this trend persists, it may suggest that housing exerts less influence on the business cycle than it once did. The caveat is that the recent rise in Treasury yields has lifted mortgage rates, removing a key tailwind for housing, raising questions about the possibility of stronger headwinds ahead as financing costs increase.

Another factor helping the economy offset housing’s softer contribution lately is strong investment in AI and related technologies. Robust spending on data centers, software, and other AI infrastructure has supported overall growth, further reducing the economy’s sensitivity to housing-related weakness.

The durability of these changes is unclear, but for now the shift appears to be helping keep the economy expanding. Next week’s third-quarter GDP report is expected to show a robust acceleration in growth, based on the Atlanta Fed’s GDPNow model. If correct, the estimated 3.5% annualized increase (as of Oct. 20) would mark the strongest quarterly advance in a year.

Housing, by contrast, remains on the back foot. New residential construction fell sharply in September, sliding to 1.22 million units, a 7.4% decline from a year earlier and near the lowest level since the pandemic ended. Building permits suggest activity will stabilize in the near term, albeit at a relatively low level compared with recent history. Even so, prospects remain dim for housing to provide meaningful support for economic activity in the months, and perhaps quarters, ahead.

Real estate sales are also soft. Pending home sales tumbled 7.3% last month from August and plunged 11.3% from a year earlier. A key factor is the sharp rise in borrowing costs. The average 30-year mortgage rate held at 7.40% this week, remaining near its highest level in nearly three years after a seven-week climb, according to mortgage buyer Freddie Mac.

Unsurprisingly, sentiment in the homebuilding industry remains gloomy, falling to a 14-year low in October as mortgage rates above 7%, affordability challenges, and weak buyer demand continued to weigh on new-home sales. Pending home sales tumbled 7.3% last month from August and crashed 11.3% year-over-year.

The bearish tide is weighing on homebuilder stocks, but this corner of equities may not yet fully reflect the industry’s troubles. The SPDR S&P Homebuilders ETF (XHB) has been retesting recent lows and appears close to breaking below support, a move that could trigger a new round of selling pressure.

The irony is that the long-term supply-demand fundamentals remain favorable for housing. Years of underbuilding have left many markets short of available homes. But as a recent report from Harvard University’s Joint Center for Housing Studies observes, “Persistent affordability challenges and rising economic uncertainty are squeezing housing conditions, with weakening labor markets and plummeting immigration dampening household growth.”

The bottom line is that housing no longer appears to be the economic kingmaker it once was. A resilient consumer sector, homeowners insulated by fixed-rate mortgages, and a surge in technology investment have allowed the broader economy to absorb a housing slump that might have triggered a recession in earlier decades.

Yet housing’s troubles are far from over, which raises the concern the ongoing pain could start to cast a longer, deeper shadow over the economy. Housing may no longer drive the business cycle the way it once did, but it would be a mistake to dismiss the sector entirely. If interest rates continue rising, further pressure on affordability and homebuilding could magnify housing’s economic footprint, turning today’s modest drag into a more consequential headwind for growth.