Beyond Jackson Hole 2026 Edition
The S&P 500 fell on Friday, but still notched a winning week, after Federal Reserve Chairman Kevin Warsh conveyed some worry over current inflation trends.
The broad market index lost 0.25% and closed at 7,711.76, while the Nasdaq Composite slid 0.52% to 26,402.42, weighed down by losses in semiconductor stocks such as Nvidia and Intel. The Dow Jones Industrial Average was down 9.45 points, or 0.02%, and ended at 53,559.99.
The S&P 500 advanced 0.5% on the week, while the Nasdaq gained 0.9%. The Dow climbed 0.5% in the period for its first winning week in three.
In his remarks at the central bank’s annual symposium in Jackson Hole, Wyoming, Warsh said, “While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved.”
He also said, “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job ... our mandate ... and our charge to keep.”
Bets among fed funds futures traders that the Fed will raise interest rates in September increased to 57.5% on Friday, per CME Group’s FedWatch tool. That’s up from 35.4% just a day ago.
Treasury yields on the short end of the curve were higher immediately after Friday’s speech, while those on the long end — which are linked to borrowing costs throughout the economy and have been a source of concern for markets recently — were roughly flat. By the end of the trading day, however, those on the short end had come off their lows.
“I found this speech in particular to be a very strong kind of message, both a message to the market but also just a kind of message in general that the way the Fed has done business for maybe the last 40 years in some ways has not been as rigorous as it could be,” said Bill Birmingham, managing director at REX Financial.
Birmingham added that Warsh’s comments about the composition of CPI in particular signal “that he is very much looking for consensus internally to raise rates,” he added.
Investors also digested more earnings results. Gap shares jumped about 13% despite a mixed quarterly report as the retail announced a new chief executive for the struggling Old Navy brand. Marvell Technology slid more than 10% after issuing current-quarter guidance for non-GAAP gross margin that disappointed the Street.
Jennifer Schonberger of Yahoo Finance also reports Warsh offered forward guidance after all, former Fed vice chair says:
Markets knew they weren't going to get an answer to what the Federal Reserve would do next — so-called forward guidance — when the central bank's chairman, Kevin Warsh, spoke on Friday morning. The biggest question looming over Warsh's highly anticipated speech was whether he would clarify how the Fed will respond to rising inflation.
On that, he delivered, former Fed vice chairman Alan Blinder, now a professor of economics at Princeton University, said in an interview with Yahoo Finance.
Warsh painted a robust picture of the US economy, noting that economic growth appears to have strengthened, while characterizing the labor market as stable at full employment. He underscored that inflation remains too high and that while this summer's inflation readings were better than expected, they "do not tell me that underlying trends have meaningfully improved."
"I would call that forward guidance," Blinder said. "He doesn't call it forward guidance … That sounded to me like somebody who thought interest rates should go up, right?"
Blinder thinks a September rate hike is on the table, saying Warsh sounded "like a man who was rationalizing raising interest rates."
"My guess is they'll be raising rates in September, just a quarter of a point, and [then] they'll wait," he said.
Traders appear to agree. Odds of a September rate hike rose to nearly 60% following Warsh's speech, up from 35% on Thursday.
"Markets almost always want more clarity than policymakers can deliver," Blinder added. "There's a classic mismatch between the concreteness, I'll call it, that the markets are constantly craving. I think it's the case that Kevin Warsh wants to be a little less open than, say, [former Fed Chair] Jay Powell."
In his speech, Warsh laid out the data he's monitoring to set policy and reaffirmed that the Personal Consumption Expenditures index (PCE) is the Fed's preferred yardstick for inflation, after suggesting it may not be in July.
He said he is watching changes in the growth rates of corporate earnings and capital spending, as well as the follow-on effects on asset prices, business confidence, consumer incomes, and spending.
Another former Fed official weighs in
Esther George, former president of the Kansas City Federal Reserve, said she thought Warsh delivered a very good speech.
"Although he stopped short of saying 'and here's what we'll do about it,'" she said of his economic assessment, "I think it sets it up in a way that is true to what he set out to do, which is 'I'm not going to over promise, but I'm going to tell you what we're concerned about.'"
George applauded Warsh for parsing the numerous components of PCE to pinpoint how much higher certain subsectors were.
"I think that kind of analysis is important because when you're looking at trends, when you're trying to justify where you see the path, you really have to drill into it.
"So to me, his conclusion (was) that it's concerning, we know our job is price stability," she said.
More data incoming
Before their mid-September meeting, Fed officials will receive another Consumer Price Index reading, as well as data on wholesale prices, which can be used to reverse-engineer the calculation of their preferred PCE measure.
Blinder posited that Warsh thinks forward guidance means telling the public how much the Fed would raise rates in a certain time frame.
"That's not what I mean by forward guidance. It's not what a lot of people mean by forward guidance," he said.
I titled this comment "Beyond Jackson Hole 2026 Edition" because I think traders are making way too much of a big deal on Fed Chair Kevin Warsh's remarks which he delivered earlier today.
Was it a decisively hawkish speech? It sure was, focusing on rising inflation, appeasing the hawks at the Fed who want the policy rate to rise.
But will it make a difference by mid-September, when the Fed meets to discuss policy and decide whether to raise the policy rate? Colour me skeptical, but unless you see a blowout number in the August payroll data, I strongly doubt the Fed will raise interest rates next month.
The Fed is way more preoccupied now with slowing labour markets than it is with inflation data.
Also, Treasury Secretary Scott Bessent who meets every week with Kevin Warsh is fully engaged in yield curve control, with mixed results. Hard for me to see Warsh going against that trend.
Importantly, I don't see the Fed going against the Treasury and raising rates right before US midterms.
Even if Alan Blinder is right and the Fed raises by 25 basis points and stays put, it will not make a huge difference.
What I realize is that these Fed meetings are just used by traders to take profits and wait for another opportunity to go long risk assets.
We are also running into September-October where mutual funds close their year, so expect volatility.
What else happened this week? King Kong, aka Nvidia, had another blowout quarter, significantly raising guidance for all of 2027.
The stock rallied sharply after it announced but didn't make a new 52-week high.
CrowdStrike (CRWD) stock surged on Thursday amid second-quarter earnings and revenue that topped consensus estimates while the cybersecurity firm's October quarter guidance came in above expectations.
That sent all cybersecurity shares up.
Also, shares of Salesforce (CRM) jumped 22% Thursday after the company reported a beat on second-quarter earnings and announced an expanded partnership with artificial intelligence startup Anthropic.
But it all came down to Jackson Hole today and that's what everyone focused on today.
Will the Fed finally raise rates in September? Give me a break!
Here are the top-performing US large cap stocks this week (full list here):
And here are the worst-performing US large cap stocks this week (full list here):
Alright, let me wrap it up there. Enjoy your weekend, everyone, and don't fret about the Fed's next policy move; it's largely irrelevant.
Below, Federal Reserve Chairman Kevin Warsh said inflation isn’t meaningfully slowing and warned that policymakers must be confident that it is, otherwise the central bank has “work to do.” He reiterated that policymakers will return inflation to their 2% goal, which he said is a firm and fixed target. He spoke at the Fed’s annual economic symposium in Jackson Hole, Wyoming.
Second, Mohamed El-Erian, Allianz chief economic advisor, joins 'Closing Bell' to talk his takeaways from Fed Chairman Warsh's Jackson Hole speech.
Third, CNBC's Steve Liesman and Randall Krozner, Fmr. Federal Reserve governor, react to Fed Chairman Kevin Warsh's Friday speech at Jackson Hole.
Fourth, Dan Niles, Niles Investment Management founder, joins 'Squawk on the Street' to discuss Fed Chairman Warsh's Friday speech at Jackson Hole.
Lastly, Nvidia went up on good numbers, which Tom Lee points out it almost never does. That, in his read, is the healthy part of the story. Fundstrat's updated top stock ideas and the full framework behind this view were covered in the latest Fundstrat Direct webinar.
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