Fed delivers hawkish hold, while air traffic lighter than expected in July

Trend watch

U.S. air passenger traffic on a year-to-date basis is narrowly ahead of last year, which is still a record. However, the typical seasonal surge in July didn’t materialize, which means we whiffed on our call for a summer peak near 19.8 million. Instead, it appears the 2026 peak was just over 19.4 million, which occurred five weeks ago and was below the all-time record of 19.6 million set last year.

The ‘why’ might be related to several factors. First, it’s highly unusual for the summer peak to occur in June; perhaps that was caused by the World Cup, which likely pulled forward some travel.

Second, the World Cup might be a misnomer in terms of tourism as inbound air arrivals to the U.S. by foreign travelers for the first half of 2026 was down 2.2% compared to last year. Previously, we mentioned here that the World Cup was a price story (revenue per available room or RevPAR) for hoteliers rather than a big boost to occupancy. Thus, it appears those massive World Cup crowds were largely domestic.

Thirdly, higher prices were probably also a culprit. The spike in energy prices has translated into a 27% year-over-year jump in consumer airfares through June, according to the Bureau of Labor Statistics.

Lastly, Mother Nature hasn’t exactly cooperated with severe weather such as heat waves, Canadian wildfires, tropical storms, and 315 confirmed tornadoes – the most active June for tornadoes since 2010.

Nonetheless, all is not lost as there were signs that consumers chose to stay closer to home. On slide 7 (available to clients in the full report), we show that many Americans went to the movies during the second quarter, which was the best quarter since 2019 and 3rd best ever in terms of box office gross. 

Our take

The economy continues to expand despite a laundry list of crosscurrents. Second quarter economic growth was held back by weaker net exports and a drawdown in business inventories, both of which weighed on the headline figure. Yet beneath the surface, the details were more encouraging, as a rebound in consumer spending and continued strength in technology-related investment provided important sources of support.

With consumers accounting for more than two-thirds of economic activity, their resilience remains a critical pillar of the expansion.

The consumer’s staying power is showing up across a variety of indicators – including movie and entertainment industry – and helped offset weakness elsewhere in the economy. Furthermore, it underscores consumers’ willingness to continue spending on discretionary experiences despite ongoing concerns about inflation and economic uncertainty.

Inflation trends also offered some encouraging news. The Federal Reserve’s (Fed) preferred measure of inflation cooled in June, which was likely the basis for policymakers holding interest rates steady this week. While inflation pressures have eased, risks remain. The renewal of attacks on Iran has pushed gasoline prices higher once again, potentially creating fresh challenges for consumers and complicating the inflation outlook in the months ahead, along with the Fed’s response.

Even with these risks, the broader economic backdrop remains constructive. Durable goods orders rebounded, while core capital goods orders reached a new all-time high, signaling that business investment remains healthy. Taken together with the strength in consumer spending, technology investment, and other leading indicators, the "Big Four" measures of economic activity continue to point toward ongoing growth. Although growth may face periodic headwinds from trade flows, inventories, or energy prices, the underlying fundamentals suggest the U.S. economy remains on a solid footing.

Bottom line

Despite crosscurrents, the U.S. economy remains on solid footing, supported by resilient consumer spending and strong technology investment. Meanwhile, business investment remains healthy, with durable goods and core capital goods orders signaling continued economic expansion. Inflation cooled in June, allowing the Fed to keep rates steady, though the recent resurgence in gasoline prices pose an upside risk. Still, our view remains that the bar remains high for a Fed rate hike this year.