By Douglas Porter

June 26, 2026

Oil prices dropped another 10% this week, taking them all the way back to nearly pre-conflict levels despite a few flare-ups of hostility around the Persian Gulf. The deep and rapid drop in crude, which saw WTI drop to $69, has soothed global inflation angst—but it hasn’t cured it.

Just as concerns over the oil shock are fading, the cost pressures from the ongoing AI boom have leapt to the forefront (Chart 1). A sudden slew of price hikes—highlighted by Apple’s announcement—stemming from rapidly rising memory chip costs—highlighted by Micron’s blowout earnings—has opened up a new front in the inflation battle. Combined with a surprisingly hawkish sounding Fed, the AI cost pressures cut tech stocks, taking the Nasdaq 7% below its peak hit at the start of June.

Aggravating the latest concerns over rising tech costs is the reality that underlying U.S. inflation already was more stubborn than expected through the spring. The core PCE price index was roughly as bad as expected in May, up 0.3% m/m, lifting the annual inflation rate for this key Fed gauge to 3.4%, the fastest in nearly three years and a long way from the 2% target.

Just since the start of 2026, the index has risen at a meaty 4.2% annualized rate, with unnerving strength in both goods and services. Chicago Fed President Goolsbee may have spoken for many officials when he said that inflation is still too high and going in the wrong direction.

Still, markets have been relieved by the surprisingly swift pullback in oil prices—which has made a mockery of those warning that it would take months/years to reverse the war’s damage and the plunge in global inventories. Short-term Treasury yields unwound much of last week’s post-FOMC pop, as lower fuel costs have taken out some of the most aggressive views on potential rate hikes. Ten-year yields have stepped down almost 30 bps from the peaks of a month ago, easing back below 4.4% this week, albeit still up about 20 bps since the start of the year.

Even the mighty U.S. dollar stepped back a bit from a one-year high this week, ending about little-changed versus both the euro and the loonie. (The UK pound held its own, despite the spinning wheel at 10 Downing Street casting out Keir Starmer, barely two years after winning one of the largest landslide election victories ever for Labour.)

Attention will now turn to the U.S. jobs report in the coming holiday-shortened and disrupted week. For a change, payrolls will be out on Thursday, and are widely expected to reveal another solid, triple-digit gain, holding the jobless rate steady at 4.3%. While the U.S. economy is uneven, the overall picture remains sturdy, with the AI boom pacing manufacturing, orders, jobs and income growth, with a side order of cost pressures.

North of the border, it may be Canada Day on Wednesday, but it won’t be Canada’s week to deliver jobs data (the employment survey won’t be out until July 10). The focus will initially be on monthly GDP (Tuesday), which is expected to show a solid recovery from the Q1 stumble, with a 0.3% rise in April and a further rise in the flash reading for May.

But much of the attention is likely to fall on trilateral talks around the USMCA on July 1, with that day set for a review of the deal. We’re not expecting any big news on that front yet, but even a small step forward could provide some relief for a loonie testing the 70-cent level.

Remembering Alan Greenspan: They often say: “don’t ever meet your hero in person”. Well, former Fed Chair Alan Greenspan wasn’t exactly my hero, but there’s no denying he was THE titan of central bankers for almost two decades, and we business economists appreciated the fact that he had been one of us prior to becoming Fed Chair. (It’s tough to name another major central banker who came up from the ranks of private sector economists.) And the one chance I had to meet the man in person was foiled by winter weather. The backstory…

On February 14, 2007 (Valentine’s Day, as it happens), the recently retired Fed Chair was scheduled to appear before a large audience in downtown Toronto. The then-Chief Economist of BMO Financial Group, Dr. Sherry Cooper, was asked to interview Greenspan in a fireside chat. Unfortunately, the Maestro’s flight was cancelled due to “inclement weather” in Washington—no truth to the rumour that it was three flakes of snow at fault. Instead of cancelling the event, the organizers quickly shifted to Plan V, as in Virtual, perhaps more than a decade ahead of their time. They improvised by setting up a large monitor on top of a chair, from which Mr. Greenspan was beamed, with an empty suit and tie on the chair, across from Sherry (not joking).

While the empty suit was likely the most memorable aspect of the event, it certainly wasn’t the only one. To put it charitably, the audience witnessed that it was probably a good thing that the Chair had stepped aside in the previous year.

And, notably, at the event he declared that the U.S. housing slowdown was showing signs of ending. In fact, home prices would careen lower by another 26% and not hit bottom until fully five years later. Ouch. To say that the financial crisis and housing crash tarnished the Maestro’s stellar reputation would be somewhat akin to saying Moby Dick had tarnished Captain Ahab’s career.

Prior to the event, we BMO economists had the opportunity to help craft the questions, and one of my picks was “What was the single most stressful event for you as Fed Chair in your illustrious career?” Recall that Greenspan led the Fed through both Gulf Wars, the Asian Crisis and LTCM, 9/11, and the tech meltdown.

His answer was Black Monday (October 19, 1987), which arrived barely two months after he became Chair. The Fed’s fast and successful response to the crash—rate cuts and a flood of liquidity—begat the term the Greenspan Put.

In an amazing bout of timing, Fortune magazine’s cover story at that very time was “Why Greenspan is Bullish”, clearly produced just prior to the market meltdown and seemingly almost comically out of step with reality. But, remarkably, the S&P 500 would end 1987 up slightly, and rise by 40% over the next two years, all while the U.S. economy was growing at a robust 4% annualized pace.

In fact, within the next decade, Greenspan would be warning about irrational exuberance in December 1996. He may have been three years early, but he was ultimately proved correct, as the Nasdaq would eventually drop below that month’s level by 2002.

Overall, Greenspan’s self-assessment was arguably bang on the money—he received far too much credit for the many things that went right during his tenure but, then, received far too much blame for what went wrong shortly thereafter.

And finally, there’s a certain symmetry to his passing within a week of Kevin Warsh’s first FOMC meeting, given that both gentlemen were officially made Chair in the White House, by Republican Presidents serving their second term. Here’s wishing Warsh even half the success that Greenspan achieved at the Fed’s helm.

Policy Contributing Writer Douglas Porter is Chief Economist for BMO.