Mixed signals from the labor market and inflation data keep Fed policy path uncertain
Home / Mixed signals from the labor market and inflation data keep Fed policy path uncertain
By Thierry Hasse, Chief Investment Officer
Elevage Partners | February 16, 2026
Recent economic data delivered an uneven picture for investors trying to gauge the Federal Reserve’s next moves. The latest employment report showed continued labor market resilience, with steady job gains and an unemployment rate of 4.3%. Beneath the surface, however, wage growth moderated and labor force participation held at 62.5%, suggesting momentum may be softening without clearly breaking (Source: U.S. Bureau of Labor Statistics).
Chief Investment Officer Thierry HasseMeanwhile, the Consumer Price Index report offered its own crosscurrents. Headline CPI rose 2.4% year-over-year in January, reflecting encouraging deceleration driven by easing energy and goods prices. But core CPI remained elevated at 2.5%, particularly in sticky services categories such as shelter and healthcare (Source: U.S. Bureau of Labor Statistics).
For the Fed, these mixed readings present a delicate balancing act as Chair Jerome Powell looks for sustained progress toward the 2% target without tightening policy enough to unnecessarily weaken employment. For now, the path forward appears firmly data-dependent. Given such an uncertain backdrop, fixed-income investors continue to wonder how much influence Fed chair nominee Kevin Warsh may ultimately have on rate decisions in the near term.
Divergent Market Reactions: Bonds Rally While Equities Struggle
Bond investors took an optimistic view of the recent data, bidding up Treasuries and pushing the 10-year yield down to 4.05% by week’s end — its lowest level since October 2025 and a notable retreat from April 2025’s 4.7% peak (Source: CNBC). The rally reflects growing confidence that disinflationary trends may allow Fed easing later this year, while also highlighting concerns about rates staying restrictive for too long.
U.S. equity markets, however, struggled despite falling yields, with major indices finishing modestly lower amid choppy trading. The disconnect underscores uncertainty around what lower yields signal: A soft landing supported by cooling inflation, or bond markets anticipating economic weakness ahead?
Earnings season added to the mixed tone, as several companies met expectations but offered cautious guidance around cost pressures and more selective consumer spending. Technology and growth stocks remain under scrutiny as investors question the scale of capital spending tied to artificial intelligence. Amazon illustrates the concern: Shares closed at $224.27 on Feb. 4 but dropped sharply after the company announced a $200 billion capital expenditure plan for 2026 — well above analyst expectations of near $150 billion. By Feb. 13 the stock had fallen to $198.79, a decline of more than 11% (Source: CNBC).
AI Disruption Fears Create New Pockets of Volatility
The ripple effects of artificial intelligence are now extending beyond large technology firms, creating new pockets of volatility as investors reassess valuations across several industries. Insurance brokers and wealth management firms, for instance, have seen shares weaken as investors consider AI’s potential to automate portions of their historically relationship-driven businesses. Algorithmic underwriting, chatbot client service and robo-advisory tools raise questions about margins and the evolving role of human intermediaries. The speed of recent repricing suggests markets are beginning to discount longer-term structural shifts rather than near-term earnings weakness.
Software companies — both the architects and potential disruptors of AI — face similar scrutiny. Investors are reassessing which business models remain durable as large language models automate coding, workflows and specialized tasks. Legacy software providers with high-margin subscription models tied to functions AI may perform more efficiently have been particularly vulnerable, while firms positioned as AI infrastructure providers or those demonstrating clear integration advantages have held up better.
The challenge for investors is that the scope and timeline of AI disruption remain uncertain, requiring judgment calls about competitive positioning with incomplete information. For now, 2026 is shaping up as a year where AI investment is creating as many questions as opportunities. We are seeing hyperscalers (the largest cloud and AI infrastructure providers) face scrutiny over rising capital expenditures, and new business models appear vulnerable to rapid technological change.
Week Ahead: Key Data and Sentiment Drivers
Looking ahead, markets will focus on several catalysts that may shape investor sentiment. We’ll be watching the following:
Federal Open Markets Committee Minutes — Wednesday, Feb. 18 (Source: Federal Reserve)
Investors will look for insight into how policymakers are interpreting conflicting inflation signals and the potential path of monetary policy.
Walmart Q4 Earnings — Thursday, Feb. 19 (Source: Walmart Investor Relations)
Given the company’s broad reach across U.S. consumers, management commentary may offer a real-time read on spending trends and household behavior.
Advance GDP (Q4) — Friday, Feb. 20 (Source: Bureau of Economic Analysis)
The report should provide a broader view of economic momentum entering the new year, with particular attention on signs of moderating consumer activity.
With U.S. markets closed Monday in observance of Presidents Day, investors have a brief chance to step back and reset while we remain focused on the signals shaping the path ahead.
Important Disclosure(s)
The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.
Mixed signals from the labor market and inflation data keep Fed policy path uncertain
Home / Mixed signals from the labor market and inflation data keep Fed policy path uncertain
By Thierry Hasse, Chief Investment Officer
Elevage Partners | February 16, 2026
Recent economic data delivered an uneven picture for investors trying to gauge the Federal Reserve’s next moves. The latest employment report showed continued labor market resilience, with steady job gains and an unemployment rate of 4.3%. Beneath the surface, however, wage growth moderated and labor force participation held at 62.5%, suggesting momentum may be softening without clearly breaking (Source: U.S. Bureau of Labor Statistics).
For the Fed, these mixed readings present a delicate balancing act as Chair Jerome Powell looks for sustained progress toward the 2% target without tightening policy enough to unnecessarily weaken employment. For now, the path forward appears firmly data-dependent. Given such an uncertain backdrop, fixed-income investors continue to wonder how much influence Fed chair nominee Kevin Warsh may ultimately have on rate decisions in the near term.
Divergent Market Reactions: Bonds Rally While Equities Struggle
Bond investors took an optimistic view of the recent data, bidding up Treasuries and pushing the 10-year yield down to 4.05% by week’s end — its lowest level since October 2025 and a notable retreat from April 2025’s 4.7% peak (Source: CNBC). The rally reflects growing confidence that disinflationary trends may allow Fed easing later this year, while also highlighting concerns about rates staying restrictive for too long.
U.S. equity markets, however, struggled despite falling yields, with major indices finishing modestly lower amid choppy trading. The disconnect underscores uncertainty around what lower yields signal: A soft landing supported by cooling inflation, or bond markets anticipating economic weakness ahead?
Earnings season added to the mixed tone, as several companies met expectations but offered cautious guidance around cost pressures and more selective consumer spending. Technology and growth stocks remain under scrutiny as investors question the scale of capital spending tied to artificial intelligence. Amazon illustrates the concern: Shares closed at $224.27 on Feb. 4 but dropped sharply after the company announced a $200 billion capital expenditure plan for 2026 — well above analyst expectations of near $150 billion. By Feb. 13 the stock had fallen to $198.79, a decline of more than 11% (Source: CNBC).
AI Disruption Fears Create New Pockets of Volatility
The ripple effects of artificial intelligence are now extending beyond large technology firms, creating new pockets of volatility as investors reassess valuations across several industries. Insurance brokers and wealth management firms, for instance, have seen shares weaken as investors consider AI’s potential to automate portions of their historically relationship-driven businesses. Algorithmic underwriting, chatbot client service and robo-advisory tools raise questions about margins and the evolving role of human intermediaries. The speed of recent repricing suggests markets are beginning to discount longer-term structural shifts rather than near-term earnings weakness.
Software companies — both the architects and potential disruptors of AI — face similar scrutiny. Investors are reassessing which business models remain durable as large language models automate coding, workflows and specialized tasks. Legacy software providers with high-margin subscription models tied to functions AI may perform more efficiently have been particularly vulnerable, while firms positioned as AI infrastructure providers or those demonstrating clear integration advantages have held up better.
The challenge for investors is that the scope and timeline of AI disruption remain uncertain, requiring judgment calls about competitive positioning with incomplete information. For now, 2026 is shaping up as a year where AI investment is creating as many questions as opportunities. We are seeing hyperscalers (the largest cloud and AI infrastructure providers) face scrutiny over rising capital expenditures, and new business models appear vulnerable to rapid technological change.
Week Ahead: Key Data and Sentiment Drivers
Looking ahead, markets will focus on several catalysts that may shape investor sentiment. We’ll be watching the following:
Investors will look for insight into how policymakers are interpreting conflicting inflation signals and the potential path of monetary policy.
Given the company’s broad reach across U.S. consumers, management commentary may offer a real-time read on spending trends and household behavior.
The report should provide a broader view of economic momentum entering the new year, with particular attention on signs of moderating consumer activity.
With U.S. markets closed Monday in observance of Presidents Day, investors have a brief chance to step back and reset while we remain focused on the signals shaping the path ahead.