To The Moon

Over the past year, historic spending on the AI buildout has arguably kept the economy afloat. Yet, despite that historic spending, real GDP growth (growth on top of the rate of inflation) was just 0.5%, 2.1%, and 1.5%, respectively, in the past three quarters, well below what experts thought it would be coming into the year.

That’s not a great rate of growth given the level of capital investment and there are plenty of signs consumers are being squeezed by high oil prices and interest rates.

The problem is, I don’t think either can or will get any better anytime soon.

More on that in a moment.

Why Gasoline and Interest Rates Will Stay High

One of the big misses a lot of prognosticators and CEOs made coming into 2026 was expecting interest rates to be lowered, boosting economic growth. For example: $SoFi Technologies Inc.(SOFI)$

Rates definitely aren’t going to be cut at this point and real GDP growth probably isn’t going to hit 2.5% either.

But why?

I think prognosticators got too wrapped up in the combination of politics and rate cuts (hope that Trump would push the Fed to cut rates), but what no one saw was inflation getting worse. And there are good reasons that happened.

Oil prices have been a thorny issue over the past six months because of a self-inflicted wound. Yes, the war in Iran and the destruction all over the Middle East. And it doesn’t seem like the Straight of Hormuz is going back to any level of “normal” anytime soon. $WTI Crude Oil - main 2610(CLmain)$

Even if it did, there are structural reasons to believe oil prices will remain elevated for some time.

1. Iran appears to be set on a toll for oil traveling through the Straight of Hormuz, which will make oil incrementally more expensive.

2. China has softened the blow of production disruptions in 2026 and will need to refill reserves.

3. Some production around the Middle East will be hampered for years to come.

The good news is, U.S. oil production has helped fill the gap and the U.S. economy has been resiliant. The downside is, that’s led to inflation.

Making matters worse, interest rates aren’t helping calm the issue. Mortgage rates are at levels not seen since before the financial crisis that started in 2007 and don’t appear to be going down.

The 10-year, which is a proxy for mortgage rates, is climbing and that could continue as the U.S. and corportations take out more debt.

The Fed also doesn’t have a reason to cut rates because inflation is stubbornly high (see oil prices).

So, here we sit.

Oil prices are pushing up prices at the pump, which puts pressure on consumers who spend less on shoes and restaurants.

And homes aren’t built, aren’t remodeled, and are hard to sell because homeowners are “stuck” in homes with low interest rates and buyers can’t afford to buy/upgrade.

Until something changes, the core economy looks like it’ll be in a ho-hum place.

The problem is, changes needed to bring down oil prices and cut interest rates also correspond with a recession.

I guess the status quo is OK for now, but the position is more tenuous and reliant on the AI trade than I would like.