Warsh Talks Tough, Reviving September Rate-Hike Bets
August 31, 2026
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Investors spent last week bracing for Jackson Hole, and Federal Reserve (Fed) Chair Kevin Warsh did not disappoint the hawks. In his keynote, Warsh emphasized that while summer inflation prints “were better than expected, they do not tell me that underlying trends have meaningfully improved,” adding that “otherwise, we have work to do”—his clearest signal yet that a rate hike may be warranted.1 Markets repriced quickly: the implied odds of a September hike jumped to roughly 58% from 36% the day before, and the policy-sensitive 2-year Treasury yield pushed 11 basis points (bps) higher, while the 10-year held near 4.72%.2 July core Personal Consumption Expenditures (PCE) remained sticky, while the second estimate of second-quarter gross domestic product (GDP) showed resilient underlying private demand.
Equities took the hawkish turn in stride. The S&P 500 Index rose approximately 0.5% on the week,3 helped by Nvidia’s strong results—revenue more than doubling year over year, with guidance signaling that artificial intelligence (AI) demand would remain strong into next year—and, importantly, a powerful rebound in software.4 Strong outlooks from Salesforce (+22%, its best day since 2020) and CrowdStrike (+20%) helped ease concerns that generative AI could significantly pressure enterprise-software business models, broadening investor enthusiasm for AI-related companies beyond semiconductors.5,6
Credit remained remarkably well-behaved. The ICE BofA U.S. High Yield Index option-adjusted spread ended the week at 260 bps, tightening from 270 bps a week earlier.7 The U.S. Corporate Investment Grade Index spread tightened two bps to 78 bps, though yields remain near the highest of the year.8
The week ahead centers on the labor market. Institute for Supply Management (ISM) manufacturing on Tuesday, ADP on Wednesday and Friday’s August employment report—expectations calling for roughly 50,000 nonfarm payrolls, with unemployment at 4.1%—are the last major readings before the September Federal Open Market Committee (FOMC) meeting.9 The question is whether a single soft jobs print can cool hike expectations, or whether heavy September issuance and a firm labor market keep upward pressure on the front end.
Sources:
1Board of Governors of the Federal Reserve System – Keynote Remarks by Chairman Warsh at the 2026 Jackson Hole Economic Policy Symposium; 8/28/26
2,8Bloomberg
3LPL Research – Weekly Market Performance, August 28, 2026
4Nvidia – Nvidia Announces Financial Results for Second Quarter Fiscal 2027; 8/26/26
5CNBC – Salesforce rockets 22% for second-best day ever, leading software rally; 8/27/26
6CNBC – CrowdStrike posts best day ever, Okta’s stock pops nearly 29% as rising AI threat lifts earnings; 8/27/26
7FRED – ICE BofA US High Yield Index Option-Adjusted Spread; as of 8/28/26
9MarketWatch – Economic Calendar; as of 8/31/26
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