US Macro Causal Map — what's driving what

Eight forces — inflation, the Iran war & oil, population growth, unemployment, layoffs, GDP, the stock market, and house prices — and the channels through which each transmits to the others, with a 3–6 month scenario outlook.

Updated September 4, 2026 (originally published Aug 10) · latest official prints noted per tile

Inflation (PCE, June)

3.7%

▼ from 4.1% in May · core 3.3% · still ~2× the Fed's 2% target

Oil — Brent (Iran war)

~$85

Spiked to $91 this week · Hormuz still shut · US strategic reserve at 1982 lows

GDP growth (Q2, ann.)

1.5%

▼ from 2.1% in Q1 · consumer & AI capex up, government down

Unemployment (July)

4.1%

▼ but payrolls −23K — rate fell only because the labor force is shrinking

Layoff announcements (July)

33.4K

▼ 2-yr low overall · but AI cited in 33% · tech cuts YTD +67%

Population growth

0.5%

Net migration −54% to 1.3M, headed toward ~0.3M — labor supply shock

S&P 500 (Aug 19)

7,717

Off records · closed the week pricing a Canada deal that then collapsed — Monday reprices

House prices (Case-Shiller)

+0.7%

y/y — weakest since 2011 · falling in real terms · 30-yr mortgage 6.63%

The causal map

Hover or tap any node to isolate its inflows and outflows. Blue arrows push activity or prices up (supportive); red arrows push them down or force tightening (restrictive). Sign labels appear on the highlighted edges.

supportive / upward push restrictive / downward push hover a node to trace its channels

Hover a node above to see how it transmits to the rest of the system.

The central tension — a mild stagflation squeeze. Inflation (3.7%) says the Fed should hike; shrinking payrolls (−23K) say it should cut. It can't do both, so it does nothing — while the labor-supply contraction from collapsed immigration makes the jobs data look healthier than it is (unemployment fell in a month the economy lost jobs). Every scenario below is a different resolution of this tension.

Next 3–6 months — three scenarios (Sep 2026 → Feb 2027)

Probabilities are judgment calls, not model output — they reflect the current balance of evidence and shift with each data print. The Hormuz negotiation is the single biggest branch point.

Grinding stagflation-lite

~45%

Trigger: Hormuz stays closed or half-open; no escalation, no deal

Oil $75–95; inflation stuck 3–4%; Fed holds through year-end with hawk-dove dissents both ways
GDP slows to 0.5–1.5%; payrolls hover around zero but unemployment only drifts to ~4.3–4.5% because labor supply keeps shrinking
Stocks churn sideways with violent sector rotation (July's semi crash as the template); long yields stay high
House prices go negative y/y nominal by winter; frozen volumes, no crash (supply still tight)
No official recession call — but it feels like one: real incomes flat, savings rate 2.6% and falling

Oil shock → recession

~30%

Trigger: talks collapse, escalation, or new supply disruption; Brent >$110

Headline inflation re-accelerates toward 5%; the Fed's hawks win — a hike into a weakening economy
The exhausted consumer (savings 2.6%) finally cracks; layoffs broaden beyond AI/tech; payroll losses deepen
Stocks −15–25% from highs — this time rotation fails because every sector faces the same rate shock
Housing: first sustained nominal price declines since 2011 as mortgages push past 7.5%
Recession begins Q4 2026–Q1 2027 — the classic post-war pattern: oil shock + policy tightening

Peace dividend

~25%

Trigger: Hormuz deal signed; strait reopens; Brent <$70

Energy disinflation pulls headline PCE toward 2.5–3% by early 2027; hike odds vanish
Fed pivots to cuts by Q1 2027 in response to the soft labor market — the "insurance cut" playbook
Stocks extend the melt-up (the market is already partly pricing this); breadth finally broadens
Mortgage rates fall toward 6%; housing thaws into spring 2027 selling season
Risk inside the good news: easing into 3%+ core inflation re-runs the 1970s stop-go mistake

⚠ Recession probability, next 12 months (judgment estimate)

~35–40%

0%25%50%75%100%

Updated Sep 4: cut back to 35–40%. The August payroll report removed the evidence this number was raised on. July, which we cited as the cycle's first negative print at −23,000, was revised to +21,000; June was lifted to +31,000; and August added 162,000 against a 55,000 forecast. There was never a negative print. Held at the top of the band rather than cut further because the composition is poor and the Fed risk is real: food services (+59,000) and local government education (+42,000) supplied 62% of August's gain, information shed 23,000, the twelve-month trend is just +31,000 a month, participation is down half a point since January, and average hourly earnings at 3.1% are running below core PCE at 3.3% — real wages are falling. Meanwhile September hike odds hit 60% on the print before settling near 50%, the 2-year yield set a fresh 52-week high at 4.39%, and WTI is back to $90.55 on the Iran conflict. The mechanism is no longer a cracking labour market; it is a labour market strong enough to let the Fed tighten into 3.1% wage growth and $90 oil.

What to watch — the prints that move the probabilities

When	Event	Why it matters
Aug 12	July CPI	First read on whether June's disinflation (3.5% CPI) extends. A hot print revives September hike odds instantly.
Ongoing	US–Iran / Oman-mediated Hormuz talks	The single biggest branch point. Reparations + sanctions relief are Iran's price; any signed deal reprices oil, inflation, and the Fed within days.
Sep 4	August jobs report	A second consecutive negative payroll print has, historically, almost always meant the cycle is turning. Watch labor force size, not just the rate.
Sep 15–16	FOMC meeting	July had 3 dissents for a hike. Warsh's credibility test: hike into weakness, or hold and let long yields do the tightening.
Late Sep	Case-Shiller (July data)	Whether y/y goes negative nominal — psychology matters for the wealth effect once "prices fall" headlines start.
Oct 29	Q3 GDP advance	Consensus path 1.5% → ~1%. A sub-1% print with the price index rising = stagflation confirmed.
Nov–Dec	Holiday consumer season	Savings rate 2.6% is the lowest in ~4 years. If spending holds only via credit-card growth, Q1 2027 payback risk rises.