The two economies: which one does the Fed see from Jackson Hole?

In a thread I started this week about the 10 year Treasury, one reply stuck with me. Maybe the reason the economy has become so hard to make sense of is that we are not really looking at one economy anymore. We are looking at two different experiences that get averaged together into the same national numbers.

I said in that thread that I would go back and pull the actual data, so I did. Every number below was checked on August 24, 2026. The results were not exactly what I expected. A couple of things I had assumed were true, and had even repeated myself, did not survive the check. I think that makes the exercise more useful, not less.

The broad economy still looks fairly healthy on paper. Real GDP per person has grown for five straight quarters, including the first two quarters of this year. If that were the only number you followed, there would not be much reason to think something unusual was happening.

Real disposable income per person tells a somewhat different story. Adjusted for inflation, it peaked in February, fell through April and, as of June, had still not fully returned to its February level. The decline was not dramatic, but it happened at the same time GDP per person continued to rise. The economy was getting larger while inflation-adjusted disposable income per person was moving the other direction for part of the spring.

Consumer sentiment makes the disconnect harder to ignore. The University of Michigan index fell to 44.8 in May and recovered to 49.5 in June. For comparison, it never fell below 55 during 2008. That does not mean today's economy is anything like the financial crisis. It clearly is not. But it is unusual to see people this pessimistic while the headline numbers stay relatively strong.

Household credit is sending a mixed signal. Credit card delinquencies have fallen every quarter since mid-2024, seven straight. Mortgage delinquencies have drifted higher over roughly the same stretch, from 1.71 percent in early 2024 to 1.89 percent in the first quarter of this year. Both series only run through the first quarter, so they say nothing about this summer, and I would not make too much of either one alone. But the difference in direction is worth watching.

There were also two things I expected to find that turned out to be wrong.

I thought real GDP per person had gone negative this year. It has not. It grew, and the one recent decline was the first quarter of 2025, not this year.

I also thought credit card delinquencies were climbing. They are falling, and I had repeated the opposite before checking the series closely.

So I do not think the right conclusion is that the economy is secretly collapsing or that the official numbers are hiding a recession. The data do not support that. What they show is that growth is not being felt evenly, and some of the strongest parts of the economy are concentrated in places that do not touch every household the same way.

A large amount of recent business investment has been tied to artificial intelligence and the infrastructure being built around it: data centers, computing equipment, software, and power. The Fed's own research estimates that investment likely connected to AI contributed about 1.36 percentage points to GDP growth in the first quarter of this year, the largest quarterly contribution in the data going back to 2022 (Vice Chair Jefferson, July 16 speech). The Fed's July Monetary Policy Report adds that business investment outside those AI-related categories has been considerably weaker. That does not mean the rest of the economy is in recession. It does mean a strong GDP number can coexist with a much less impressive experience elsewhere.

What makes this more interesting is that the Fed itself is describing the same divide. From the July FOMC minutes: some participants observed that stock market gains had provided support to consumer spending, particularly among higher-income households, while some noted that low- and moderate-income households were under increasing strains, with inflation eroding their real disposable income. That may be a better description of the two economies than anything I could write. Higher-income households have gotten more from strong asset prices and the AI investment boom. Other households are still dealing with expensive groceries, housing, insurance, and borrowing costs, without the same gains underneath them. Both experiences are real. The national numbers average them together.

That is what makes Jackson Hole worth your attention this week. Central bankers gather in Wyoming for the Kansas City Fed's annual symposium, and the chair's Friday morning speech is traditionally the headline. I am less interested in predicting what gets said than in hearing which parts of the economy get the airtime. If the speech is about resilient growth, strong investment, and a labor market holding up, that describes one side of the economy. If it dwells on weak real income growth, crisis-level sentiment, and pressure on lower- and middle-income households, that describes the other. Monetary policy has to deal with both at once.

This year's gathering also comes at an unusual moment for the institution. It is Kevin Warsh's first Jackson Hole as chair, after a split Senate confirmation this spring. Jerome Powell stayed on the Board as a governor after leaving the chairmanship and still votes on policy, something a former chair has not done since Marriner Eccles in 1948. The committee is openly divided: three regional presidents, Hammack, Kashkari, and Logan, dissented in July in favor of a quarter-point hike, while the White House keeps pushing publicly for cuts, and a legal fight continues over whether a president can remove a sitting Fed governor. Markets do not just price what the Fed does today. They price expectations about inflation, future rates, and the credibility and independence of the institution deciding. Nobody votes on that premium. It can simply show up in long-term Treasury yields and, from there, in borrowing costs from corporate debt to mortgages.

For military families the gap between the headline economy and the household economy is easy to understand. Military pay tables reset annually. Grocery bills, rent, insurance, utilities, and repair costs change whenever they want. When the economy grows without household purchasing power keeping pace, families on a fixed pay table feel the difference first and longest.

I started pulling these numbers expecting them to confirm the thread. Some did. Some did not. That is probably the part worth keeping. The economy is growing. AI-related investment is driving a meaningful share of that growth. Asset owners are generally in a stronger position than households with less cushion. Sentiment is unusually weak and real disposable income softened this spring. None of those facts cancels out the others. They are all the same economy. The average just does a poor job of showing how differently people experience it.

No prediction here and no investment advice. Just check the numbers yourself, including the ones that seem obvious. Two claims I expected to confirm turned out to be wrong, which is a good reminder that the claims everyone agrees on are often the ones most worth checking.

The live VA and conventional mortgage averages are on Rate Watch, updated daily.