Fresh U.S. GDP and personal consumption expenditure data are reinforcing concerns about the durability of consumer spending as higher energy prices and inflation continue to pressure households.
BNN Bloomberg spoke with Gennadiy Goldberg, managing director and head of U.S. rates strategy at TD Securities, about the implications for Federal Reserve policy, inflation risks and why markets remain focused on developments in the Middle East.
Key Takeaways
- Slower first-quarter U.S. growth and softer consumer income data suggest household spending may be increasingly reliant on savings.
- A “K-shaped” economy continues to emerge, with higher-income consumers supporting spending while lower-income households face mounting pressure.
- Markets reduced expectations for future Federal Reserve rate hikes after the latest GDP and PCE data came in softer than feared.
- Elevated energy prices tied to Middle East tensions remain a major inflation risk and could influence future Fed policy decisions.
- Investors are closely watching whether inflation pressures spread into core services, which remains a key concern for the Federal Reserve.
Read the full transcript below:
MATT: U.S. GDP rose 1.6 per cent in the first quarter, with real PCE up US$18.1 billion in April. Here to provide in-depth analysis is Gennadiy Goldberg, managing director and head of U.S. rates strategy at TD Securities. Morning. Thanks for being here.
GENNADIY: Thanks for having me.
MATT: Hey, let’s get into it, too. A little bit off survey at two per cent, at least as expected, but what does that mean, or what’s your initial takeaway from the numbers that we did see this morning?
GENNADIY: Yeah, I think the big takeaway here is that there was a little bit of a disappointment in terms of growth in Q1, both on the back of a little bit slower investment and slightly slower consumer. That gets us into April, where we actually saw consumer spending on the PCE data, assuming consumer incomes actually coming in relatively weak, which is a little bit tricky because you do have a fairly robust labour market, a consumer that isn’t getting a ton of income, at least according to the April data, but spending that is still relatively robust. So you’re seeing a lot of a drop in savings as consumers really dip into those savings to keep that spending going. So it’s a little bit of a tricky setup for the Fed, which recently, at least according to market odds, has been penciling in more rate hikes rather than rate cuts.
MATT: Yeah, it’s interesting as we watch where that’s going to. I think some of the uncertainty that we’ve seen overall, market-wise and otherwise. But give me your sense, too, touching on the security, and we talk about that personal consumption number. Maybe in as expected, but dig a little deeper for us, if you can, into that as we watch savings dipping, and just how tricky that’s going to be here as we get into the next quarter and through the next few months.
GENNADIY: Yeah, no, we’ve got a very solid labour market at the moment. It is low hire, low fire, which certainly is keeping a lot of folks on edge. The issue here is that you’re not seeing significant growth in incomes, and part of that is starting to weigh a little bit on the potential for future spending. If you don’t have consumers who are having significant income growth, it is difficult for them to keep spending at the same rate. Now, you do have a bit of a K-shaped economy. The top echelon of consumers is spending because they do have fairly robust gains on their equity portfolios and investment portfolios overall. The bottom of that K-shape is struggling, and the longer this continues, the more they dip into savings, the more unsustainable it becomes. So, when it comes to the question for the Fed, for example, should the Fed be hiking rates from here, I think the data this morning actually pushes back on that hiking narrative, which is why you saw the market pricing for a rate hike go from about 19 basis points in 2026 to about 16 basis points. The market is still pricing it in, just not quite as much as it was even earlier this morning.
MATT: And Kevin Warsh has said, too, that he wants to kind of see a wait-and-see approach, right? Doesn’t want to take any action too quickly, at least at this point. What’s your best bet? You said the market is pricing that in, at least for now, but what’s our best guess for when we might see the Fed actually look at hiking the rate?
GENNADIY: Right, so at TD Securities, we’re not looking for the Fed to deliver any rate hikes or cuts this year. We expect them to stay largely flat. We do expect rates to remain fairly steady from here. We’re not really looking for them to take additional action there. They are in wait-and-see mode. It is a tricky backdrop for Fed Chair Warsh. He was basically put into place to try to get interest rates lower. At least that was President Trump’s intention. It’s going to be difficult to do that as inflation stays relatively elevated. Growth is still fairly robust. I think the best-case scenario is the Fed keeps rates unchanged for most of the year, and that keeps interest rates overall, including the 10-year, relatively elevated, even though we do have a little bit of a downward bias by the end of the year.
MATT: You touched on, too, especially in that K-shaped economy, the lower end of it. We know that energy prices, in particular for gas and diesel, fuelled by the war and conflict in the Middle East, still seemingly don’t have an end. We’ve seen investors at a couple of different points buoyed at least a little bit by the fact that we might see some sort of agreement. But where is that factoring into all of this as well? Because it does feel like that’s the overarching factor affecting all these different parts of the market and consumers as well.
GENNADIY: Absolutely, that is still the biggest overarching factor in all of this. I think that has the biggest ability to break markets one way or the other. If you get a deal that actually reopens the Strait of Hormuz, you can see oil prices fall significantly, inflation expectations start to drop off rather quickly and interest rates can actually go lower. I think the market stops pricing in rate hikes. The longer this persists, the longer you get this current scenario of relatively decent growth in the economy and also high inflation, and expectations that with every passing day you’re going to have trouble with higher energy prices, and that’s going to keep feeding through into inflation. You may actually need the Fed to hike rates a little bit because the economy is still strong. That’s the tricky part for rates investors. Much as the macro data certainly matters, and we’re watching it very closely, the bigger overarching theme for whether the Fed hikes or cuts within the next 12 months will depend very crucially on Iran. Unfortunately, there’s a lot of he-said, she-said type headlines from there, where you’ll see headlines and they’ll be refuted later in the day. Markets are just incredibly uncertain on this kind of price action, and it’s keeping a lot of investors sitting on their hands waiting for some sort of clarity, even though it feels like these negotiations can continue to drag on and on.
MATT: Yeah, it certainly is the case, at least for right now. Maybe that answers my next question, my last one before you go, Gennadiy, too. Your expectations for Q1, because I’m assuming there’s still a lot of uncertainty, but what are we looking at here, whether it’s on the inflation side as well for PCE?
GENNADIY: So inflation-wise, we are looking for further upside. You’ve got high energy prices, all of that is going to be passing through. What we’re really watching is how much of this passes through to core services prices. That’s the big one for the Fed. We know core goods are being impacted to some extent by energy prices and tariffs as well. What we want to see is how much contagion there is into services, and that’s really the big one. If there isn’t massive contagion, I think that’ll be encouraging. Overall, we’re just looking for pass-through. We’re basically trying to assess the damage from the backdrop at the moment. I don’t think we’re going to get surprised one way or the other. The other thing we’re looking for is growth. If you see the consumer slow down materially further, it is going to be difficult for markets to sustain that hike narrative because, at the end of the day, the Fed also wants to respond to how the economy is doing, and if the consumer is really slowing down, it’s going to be troublesome for them to actually hike rates.
MATT: Gennadiy Goldberg, managing director and head of U.S. rates strategy at TD Securities. Appreciate your time today, sir. Thanks so much for this.
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This BNN Bloomberg summary and transcript of the May 28, 2026 interview with Gennadiy Goldberg are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
