Monthly Macro: AI Booms, Inflation Bites, Fed Shifts

00:23, Chris T

Hi everybody. Today is Wednesday, June 24th, 2026. Welcome back to another episode of Monthly Macro. There's been plenty for investors to digest since our last episode. You know, the conflict with Iran remains a key focus.

 We just finished another successful Growth Stock Conference, that's our 46th.

Inflation questions are resurfacing in parts of the economy, and then markets are finally getting their first look at how new Fed Chair Kevin Warsh intends to lead the central bank.

So, today we'll touch on what the geopolitical backdrop means for markets, some of the more interesting themes that emerged from the conference, and I would say, along with what Warsh's early comments may tell us about the path of inflation rates and Fed policy going forward. Joining me to discuss, as always, is William Blair macro analyst Richard de Chazal.

Richard, welcome.

01:11, Richard D

Great. Great to be back, Chris.

01:13, Chris T

Let's start with Iran. There was a lot of concern that the conflict would create a more meaningful economic shock, particularly through energy markets. So far, that hasn't really happened. As you look at it today, what would you say are the key macro implications investors should be paying attention to still?

01:30, Richard D

Yeah. Good question. So yeah, we haven't had that demand destruction that we, you know, was feared, the, sort of, the big tail risk out there. You know, the conflict isn't officially over yet. We still have this memorandum of understanding that hasn't been seemingly ratified yet. And I see that Marco Rubio has just been now sent over as the next major, sort of, player to try and get some progress there.

But, I mean, I think it does look like we're heading to some kind of agreement. I think by any standard measure, you know, this really hasn't been the most successful campaign in US history. You know, it's hard to see what's actually been achieved here. And a lot of money has been spent getting there. You know, we still don't know if this strait is going to be tolled, you know, the Iranians are talking about putting some kind of insurance payment on it.

You know, if that was to happen, that would certainly be a step back from where we started this thing. So, we're still a little bit up in the air for the moment, but, I think, you know, for economies, you know, assuming this, you know, we're near the end here. This is probably just another, you know, step back for globalization, for free trade, for, you know, theories of competitive advantage.

You know, countries, it seems, now need to, you know, are going to have to produce more of their own food, energy, critical materials, within their own borders. You know, that was even a message that, I see Scott Bessent in today's Wall Street Journal, was, sort of, touting. You know, and, I guess, if, you know, you aren't endowed by these, sort of, natural resources, like China, you know, you're going to have to, you know, continue to expand your renewable or nuclear energy, or build up, you know, pretty big inventories of those, just in case.

And I think, you know, looking at what we've seen over the last few months, China seems to have come out of this as, kind of, a big winner, in the sense that they seem to now have a lot more information about what kind of response, or what kind of reaction function they might get from the US, in terms of any, sort of, movements they did in the direction towards Taiwan.

So, that's kind of been interesting for them, I'm sure. But, you know, moreover, is they looked pretty prepared. So, they seem to have cut their oil imports by a huge amount without having any notable effect on economic growth. So, we see, you know, traffic movement and all that stuff has still been pretty high. And, you know, those energy reductions have actually, or were actually, super helpful for the global economy, you know, keeping it on an even keel.

But I think the message is that, you know, a lot of these countries now, or other countries, you know, now need to rebuild inventories and keep those supplies stocked, you know, just in case. I think what we also learned is that it's been a win for the US on that front.

So, a lot more review demand has been directed to the US for LNG and oil. So, from that perspective, that's been helpful. And I think for financial markets, you know, the message is that, you know, that major risk that was, kind of, hanging over the market of a shoot up in energy prices once those inventories were depleted, is now, kind of, off the table.

And remember, most of the energy experts were talking about, sort of, $150 or even $200 per barrel as, kind of, like, a conservative base case number, if things didn't start to change soon.

So, I don't know if that was the threat which caused the US to, sort of, you know, sign or put forward this deal.

But, you know, definitely if the conflict had gone on a lot longer, and we're talking even, sort of, July and August, you know, the pain or demand destruction was expected to ramp up quickly, pretty quickly. And then, there would have been a bigger impact on financial markets, which I think they would have had a harder time brushing off.

So, you know, what we've seen, I guess, is, sort of, what you would expect to see. We've seen a bit of weakness in the energy indices for, I mean, obviously prices and the equity side, and some renewed strength in the consumer discretionary stocks now that gas prices have come down to just below $4 a gallon from, you know, near $5.

Still not quite back to where they were pre-conflict, I think that was just below $3, just below, yeah, $3, probably like $2.80, $2.90, before the conflict. And I think, also, the bond market, you know, it is definitely, it's a bit of a sigh of relief as those energy prices have come off. So that's going to help to temper inflation.

But I think they're also now realizing that, you know, energy, or inflation and the inflationary pressures that we've seen haven't just been energy related. I think they've been a little bit broader than that.

So, it feels like, and on top of that, you know, I think, you know, we're going to have to build those inventories. So, you know, it seems like bond yields are going to come down, and they have been coming down. But I don't think we're going back to where we were pre-war on that one.

I think the world has changed.

07:41, Chris T

So, let's switch gears. I want to talk about the William Blair 46th Growth Stock Conference a bit. After spending several days with investors, management teams, our analysts, what would you say were the most important macro themes that emerged from those conversations? And then the second question would be, did anything that you heard reinforce or challenge your outlook for the second half of the year?

08:02, Richard D

Sure. I mean, I think, you know, another great conference. I've been at William Blair now 25 years, and I think I've only missed one. We had a few, sort of, Covid years where they were, sort of, online and that was kind of awkward.

08:15, Chris T

Do those count?

08:16, Richard D

Yeah, I guess they count. I put the time in, put it that way. You know, I think investors really appreciate that they're generalist conferences, and there aren't many of those anymore on the street. So, I think for a lot of investors, it's great to, you know, if you've got some time, to wander into one of these rooms of, you know, a healthcare company you might not necessarily cover, and you, sort of, discover these, kind of, undiscovered type gems.

So, I love it, too. You know, I think I kind of treat it as my own personal beige book. You know, you get to listen to what companies are telling you, really, from the bottom up. So, I think that's super helpful from a macro perspective.

And, I think, this year, I guess had a few takeaways. You know, first, and I think most obviously what was in your face in just about every meeting was AI, you know. I think for some companies it was definitely about what productivity improvements they're getting from that.

So, for some of them, that was pretty obvious. I think for a lot of companies, though, that was a little less obvious. So, they're talking about it, but it was maybe a little bit harder to quantify on that front. It still feels like those productivity gains are more in the future than, sort of, up front, present today.

But, definitely, what was very quantifiable on that AI front was the spending that's going into the infrastructure to get this stuff off the ground and that's massive.

So, I saw one data center infrastructure building company, if that's the right phrase, and the CEO was presenting there, and these guys claim to have a, sort of, six to eight year window ahead to continue demand. And their message was, you know, they're not seeing any kind of slowdown whatsoever.

You know, they almost have more business than they can deal with. In fact, he actually, sort of, admitted that he wouldn't mind if things slowed down a little bit to allow them to catch their breath. But I thought what was interesting, and actually kind of insane was, you know, he was saying that, you know, they started getting interested in building these things -

when there were, sort of, five acres or so, it wasn't so interesting.  

When they started to get up to about 100 acres for a site, that's when they started to get a bit more interesting. And he said, now they're, sort of, up to 300, 400 hundred acres, which is pretty large.

He said nowadays that the parking lots are 100 acres. But he said, like, in the next year or two, these are going to a thousand acres. And then, in the next few years, he sees these going to 10,000, and possibly 30,000, acres after that. So, that's a lot.

You know, and the obvious question is, which somebody did ask, you know, are you seeing or what kind of backlash are you seeing yet against these things.

And, and his answer was actually not that much yet. You know, there's a bit of pushback in some areas. I think he admitted some areas or states are maybe too welcoming of that. But, you know, for the most part, you know, it's still full steam ahead.

And then layered, sort of, you know, under that is all of the industrial companies we were hearing from and how, you know, they're getting a tremendous amount of growth on the back of that. So, the message there was still full steam ahead.

I think the second thing was, you know, I always try to do is, is get a, sort of, gauge of the consumer. You know, how are they doing? I think, in aggregate, the message is, you know, fine, resilient, you know, the word keeps getting pushed about, quite a bit.

But you're still, sort of, seeing this, kind of, k-shaped recovery, you know, under the surface. So, I think, you know, the labor market is very strong, but then wages are getting eroded by higher inflation. You know, companies are not talking about shedding any labor. They're not hiring a lot either. You know, this is still a very tight labor market.

And it was interesting that one company I saw, which they specialize in background screening for employment candidates. Companies come to them and, you know, ask them if they can screen, you know, quite deep screens on these candidates. And, they basically said, you know, we talked to a lot of different companies, and not one of them is telling them that they're hiring less.

They're basically hiring the same or more. And, that, they claim, you know, is across every region and across every vertical. So, they said it's pretty much the opposite of what we've been hearing in the press. So, I thought that was encouraging.

And then I think the third major theme that I, sort of, pulled out of this year's conference was really one about inflation.

And I think that's also something we heard a lot of companies talking about directly or indirectly. You know, they were complaining about fuel surcharges. And, you know, hopefully that rolls off after this conflict ends.

But a lot of complaints about the prices for consumer staples, you know, in particular, beef prices, which are apparently through the roof. Packaging prices were really high, you know, in part, because of those higher energy prices.

But, certainly, the more discretionary consumer companies, in particular, restaurants, you know, they were complaining that over the last couple of years, they've been having to take back a lot of price. They haven't been able to, sort of, fully match changes in the CPI, so that's been more difficult.

And, maybe anecdotally, you know, just having, you know, these, sort of, famous, unsolicited conversations with Chicago cab drivers. One guy was definitely not happy about the price of chicken wings at his local butcher, which have jumped from a dollar, to something like $4, he was complaining about, in just a very short period of time.

So, I think in inflation, the message was, you know, it’s definitely a thing and is very notable to consumers.

15:05, Chris T

How are you thinking about inflation today? And did the conference change your view at all?

15:09, Richard D

Yeah, I don't think it changed the view, Chris, but perhaps reinforced it. And I think what markets and central bankers are, again, now realizing is that inflation is high, or core inflation is high. It's accelerating. It's more than just energy prices.

And there is this contingent of the market that’s, sort of, thinking, okay, right. The war is now almost over. There's going to be a supply glut of energy, and inflation is going to come right back down.

And I think what we were seeing and hearing, and what we see in the numbers, too, is that core inflation or super core inflation, you know, all of these things were actually accelerating and were even accelerating a bit before the war.

And now, you know, and that is basically because of these supply shocks we've been having. I wrote something recently about, you know, these heat waves we're having. So, El Niño is now, sort of, at our doorstep. They're calling it, or NOAA is saying it, you know, it could be a super El Niño. So, one of the biggest ones in years, or potentially ever.

And I think the problem with this is both that, you know, obviously it's going to be a huge one, but also that it's coming on top of temperatures that have also been getting progressively hotter year in, year out. Say 2025, if you look at, sort of, average yearly temperatures was the hottest on record.

And I think, you know, El Niño, despite the fact that we've been having it for, you know, hundreds of years and we’ve known about it for 100 years, is nothing really new. And then you get El Niño and then you get La Niña. The cooling in next year, or 2028 should be cooler.

But, I think, right now, what it's doing is it's just exacerbating what's already pretty extreme temperatures. So, that's going to create probably more flooding, more fires, more droughts, more crop failures. That's obviously going to put more pressure, upward pressure, on prices. And it's just yet another supply shock that consumers are facing. So, I think they're noticing that.

And, you know, they're definitely not comfortable looking through these inflation shocks, as you know, central bankers and the markets would like us to do. So, I think that was a message that was confirmed at the conference.

17:56, Chris T

Which brings us, naturally, to the Fed. You know, Kevin Warsh gave his first FOMC press conference as chair last week. What stood out to you most from his view? And, you know, how is he thinking about inflation, would you say?

18:09, Richard D

Yeah. So, yeah, it was an interesting press conference. He's definitely a lot punchier than Powell was, and I think we were expecting that. Although we were wondering whether he would actually give a press conference in the first place because, you know, he'd, sort of, mentioned, maybe getting rid of those. He wasn't too clear about that one, even when, I think, someone from Bloomberg asked him. I think, you know, the surprise for the market seemed to be that he came out much more hawkish than the market was expecting.

But, I think, to be honest, you know, I don't think that should have been such a surprise. You know -

18:53, Richard D

The whole super dove, he's a Trump lapdog, sort of thing, was probably some gamesmanship. I suspect that's, you know, him and Bessent, you know, probably game this a bit. You know, the trouble is when you come in as a new Fed chair, you need to gain market credibility quite instantly.

And then after they're, sort of, installed, you normally get the market taking a bit of a risk premium against you, you know, until you've, sort of, got your chops.

And, I think, maybe this was a way to get around that. You, sort of, come in with very low expectations, and then sound super dovish, and then the market instantly has to wonder if they've gotten it a little bit wrong and reassess what's going on.

And I think that's what's been happening over the last week. But I think, you know, so what the market seems to be focusing on, again, was this end to forward guidance, which I also said was going to be canned, so that was no real surprise.

And again, I'm saying that because I think forward guidance has already been out the window because we've had supply shock after supply shock.

And, you know, because of those, forward guidance really just doesn't exist anymore. And I don't think the Fed or any central bank can provide guidance around something where it doesn't have any clarity. So, that clarity has gone out the window. And we're in a much more volatile inflation environment. So, it was no surprise for him to say, okay, let's call it a day on that one.

I don't think it's particularly helpful, but, I think, what was actually more interesting, and probably more important, was, you know, the changes with respect to how the Fed thinks about growth, and inflation, and what drives it.

And, you know, what's the Fed's new reaction function, right? So, it's not the forward guidance that we're missing now.

It's the reaction function which we don't know, right? So, if, you know, ABC happens, how is the Fed going to think about that? How is it going to respond to that? That's not providing forward guidance. That's just, you know, telling us how they're going to react to, you know, what happens to growth, or jobs, or to inflation.

And, I think, up to now, the Fed's view has basically been, let's just look at the demand side of the equation, right? So, you have demand and supply side, you know, and on the demand side, you know, we can measure it pretty well. We can track it, and we can control it with higher interest rates.

But we can't really do that with the supply side of the economy. So, let's just, sort of, err the side of caution. And we're not going to make any, kind of, big, educated guesses, you know, about what's happening there. And remember, on the demand side, so, you know, you can look at things like retail sales, employment, income, you know, we track capital spending.

All of those things are things that the Fed can influence with changes in rates. And they're also, sort of, mostly cyclical and shorter-term variables. But when it comes to the supply side, you know, that's things like demographics, innovation, productivity, health, and education. You know, changes here are longer lasting, they're slower moving, they're less cyclical.

And you know, when it comes to things like innovation, that's, you know, one of the hardest things to predict in economics almost by definition. And, I think, what the Fed, up to now, up to Powell, has basically said is just, you know, let's stick to our knitting, you know. If measurable demand is too hot, if it looks like inflation is going to start to rise, let's, kind of, lean against that wind by slowly, you know, cranking up rates.

And if it's too slow, we'll do the opposite. And we'll pretty much ignore what's happening on the supply side because we can't change it or predict it. And I think what Warsh was basically saying at last week's meeting, he's saying, that's dumb, right? What he's saying is, you know, we're in the midst of what could be the greatest innovation wave in our lifetimes.

And, you know, if we're ignoring that, we're potentially leaving a lot of potential future growth on the table simply because we're being too cautious. So that means, you know, jobs that could have happened in a strong economy might not happen if we're raising rates into that environment. So, he's setting up these various task forces, and one of them is about productivity.

So, he's basically saying, you know, we're now going to start paying more attention to the supply side of the economy and not just write it off as something for fiscal policymakers or something we can't do anything about and, kind of, ignore it.

And I guess from that perspective, that's, sort of, his more dovish stance, which maybe the market isn't necessarily appreciating at the moment, but maybe we'll see what happens on that side.

You know, on the flip side, too, I mean, you know, obviously the hot, sexy thing is there's the innovation side. The less glamorous thing is that we're in, you know, what we've been talking about a lot, too, Chris, is this structurally tight labor force, because of demographics, which actually puts upward pressure on inflation and, potentially, rates.

So, that's going to be a new thing to balance. And we'll see what happens from these task forces when they finish what they're supposed to be doing.

25:15, Chris T

I really appreciate all the insights, as always, Richard. And, you know, thanks to everybody for listening. We’ll be back next month with another episode of Monthly Macro.