Inflation data released in August confirmed that price pressures have stalled well above the Federal Reserve's target, gross domestic product growth for the second quarter was confirmed at a slower pace than the first, and the labor market showed a mixed picture as prior monthly declines were revised away. Federal Reserve Chairman Kevin Warsh used his first major address at the Kansas City Fed's Jackson Hole symposium to signal that a rate increase remains firmly on the table, sharply shifting market expectations ahead of the September meeting. Beyond the official data, August also brought a debate over the quality of Big Tech's reported earnings and a cancer vaccine breakthrough with major implications for the pharmaceutical industry.

Headline CPI rose 0.1% in July on a seasonally adjusted basis, matching the Dow Jones consensus estimate, after falling 0.4% in June, the largest single month decline since April 2020. The annual headline rate eased to 3.4%, down from 3.5% in June and well below the April 2026 peak of 3.8%. Core CPI, which excludes food and energy, rose 0.2% month over month and 2.5% year over year, both figures also in line with consensus and down from June's 2.6% annual pace. Shelter accounted for roughly two thirds of the monthly all items increase in July.

Whereas the Fed's favored gauge, the PCE price index, told a firmer story. Headline PCE rose 0.2% in July, above the consensus estimate of a 0.1% increase, following a 0.1% decline in June. The annual headline rate held at 3.7%, exceeding the 3.6% consensus forecast. Core PCE rose 0.2% for the month, matching expectations, and the annual core rate was unchanged at 3.3%, in line with forecasts. Core PCE has now printed at 3.3% in three of the past four months, indicating the earlier disinflationary trend has stalled rather than reversed. Both measures remain well above the Fed's 2% longer run objective, a dynamic that carried directly into the policy debate later in the month.

Real GDP increased at an annualized rate of 1.5% in the second quarter of 2026, according to the BEA's second estimate, essentially unrevised from the advance estimate and down from 2.1% growth in the first quarter. An upward revision to consumer spending was offset by an upward revision to imports, leaving the headline figure largely unchanged. The consumer spending revision reflected stronger services outlays, led by health care, partly offset by a downward revision to goods. Real final sales to private domestic purchasers, a measure of core demand that excludes trade, inventories and government spending, rose 4.2%, up from 3.9% in the advance estimate and the strongest such reading in more than three years.

For the third quarter, the Atlanta Fed's GDPNow model estimated growth of 4.7% as of September 3, down slightly from 4.8% on September 1. The estimate has been volatile over the course of the tracking period, falling from 5.8% on August 6 to 4.0% on August 18 before recovering above 4.6% in the following weeks.

No FOMC meeting occurred in August. At its July 28 to 29 meeting, the Committee voted 9 to 3 to hold the federal funds rate at 3.50% to 3.75% for a fifth consecutive meeting, with regional presidents Beth Hammack, Neel Kashkari and Lorie Logan dissenting in favor of a quarter point increase. The postmeeting statement described economic activity as expanding at a solid pace, noted job gains had kept pace with the workforce and reiterated that inflation remained elevated relative to the Committee's 2% goal.

On August 28, Chairman Warsh delivered his first substantive address as chair at the Kansas City Fed's Jackson Hole symposium. He said he would be hard pressed to describe broad financial conditions as restrictive, and that improved inflation readings in June and July had not convinced him the underlying trend was genuinely improving. The remarks were widely read as raising the likelihood of a rate increase at the Committee's next meeting, scheduled for September 15 and 16. The CME FedWatch Tool showed the probability of a 25 basis point increase at that meeting at roughly 57% to 60% as of early September, up sharply from around 40% in the days before the speech.

Total nonfarm payroll employment rose by 162,000 in August, well above the consensus estimate of 53,000 and the average monthly gain of 31,000 over the prior twelve months, the BLS reported. The unemployment rate held steady at 4.1%, in line with expectations. Employment increased in food services and drinking places, up 59,000, and local government education, up 42,000, while manufacturing continued a recent upward trend, adding 16,000 jobs. The information industry lost 23,000 jobs, extending a string of monthly declines. Average hourly earnings rose 0.3% for the month and 3.1% over the year.

The employment change for June was revised up by 11,000, from an initial 20,000 to 31,000, and July was revised up by 44,000, from an initially reported decline of 23,000 to a gain of 21,000. Combined, June and July payrolls were revised 55,000 higher than previously reported, reversing what had briefly appeared to be the labor market's first outright monthly contraction in years.

August's most notable storylines beyond the official data releases included a debate over how strong Big Tech's profits really are, a cancer vaccine breakthrough that reshaped the outlook for pharma's patent cliff, and a wave of tariff refunds that boosted corporate earnings.

Amazon and Alphabet reported large profits last quarter, but a big share of those profits came from paper gains on investments rather than from selling more products or services. At Alphabet, these gains made up an estimated 71% of quarterly profit. At Amazon, they made up 66%. Together, they added up to roughly 15% of trailing second quarter S&P 500 earnings. Because these gains are unrealized markups on stock holdings, including stakes in Anthropic, they can disappear as quickly as they appeared. Set them aside, and the S&P 500's price to earnings ratio of about 27 times looks noticeably higher than the index's long run average of roughly 16 times.

Merck and Moderna said on August 19 that a personalized cancer vaccine, used together with Merck's drug Keytruda, succeeded in a late stage trial by lowering the chance that melanoma would return or spread. Moderna's stock jumped 177% and Merck's stock rose 12.6% to a record high that same day. The news matters beyond the trial itself. Keytruda, Merck's best selling drug, brought in nearly 32 billion dollars in sales in 2025 and loses patent protection in 2028. Merck is far from alone. Across the pharmaceutical industry, roughly 440 billion dollars in yearly sales are set to lose patent protection within five years. That looming cliff has pushed drug companies into their busiest stretch of dealmaking since 2019, with 114 billion dollars in transactions completed in the second quarter alone.

Companies began receiving billions of dollars in tariff refunds in August after the Supreme Court ruled certain tariffs collected under the prior administration were unlawful. U.S. Customs and Border Protection had accepted 128.7 billion dollars in refund claims for processing as of late July. Nike said it received $302 million in tariff refunds in the quarter ended May 31, then nearly all of an additional $684 million by mid July, bringing its total refunds to roughly $986 million. Caterpillar recorded 392 million dollars in expected recoveries, though it still expects 2.2 billion dollars in tariff costs for the year. FedEx said it would begin passing its 800 million dollar refund on to shippers and customers. For some retailers, including Abercrombie & Fitch, the refunds were large enough to help justify raising full year earnings guidance even as underlying tariff costs continued to weigh on margins elsewhere.