The Chairman of the U.S. Federal Reserve (the Fed), Kevin Warsh, set off alarm bells on Friday, August 28, 2026, during the traditional annual Jackson Hole symposium in Wyoming. His speech, focused on the persistence of inflation, shook investor expectations and reshaped bets on the future of interest rates in the United States.
A Clear Message: Inflation Isn't Giving Up
Warsh was blunt: inflation in the U.S. is not slowing down significantly. The official stated that the Fed needs to be certain that underlying inflation is approaching its 2% annual target; otherwise, “they will have work to do.” This phrase, interpreted as a warning, left the door open for another rate hike at the September meeting.
The data supports his concern. The PCE index (the Fed's preferred measure) remained at 3.7% year-over-year in July, while core inflation (which excludes food and energy) was 3.3%. Even more revealing: approximately half of the items that make up the PCE increased at an annual rate above 3%.
What is the PCE Index?
The Personal Consumption Expenditures (PCE) index is the inflation measure that the Federal Reserve uses as its primary reference. Unlike the Consumer Price Index (CPI), it includes changes in consumer behavior and has broader coverage of goods and services.
Economic Context: Moderate Growth and Stable Employment
The macroeconomic picture shows mixed signals. U.S. GDP grew at an annualized rate of 1.5% in the second quarter, down from 2.1% in the first quarter. The unemployment rate stands at approximately 4.1%, while personal consumption rose 0.2% in July and personal income grew 0.4%.
These numbers reflect an economy that is still advancing, but with less momentum. The combination of persistent inflation and moderate growth is precisely the scenario that worries central bankers the most.
Immediate Market Reaction
Warsh's words quickly impacted financial markets. According to the CME FedWatch tool, the probability of a 25-basis-point hike at the Fed's September 15-16 meeting jumped from 35% to 57%. Before the speech, that probability was around 33%.
Wall Street: Mixed Movements
Stock indices showed a disparate but contained reaction:
- S&P 500: +0.04%
- Nasdaq Composite: +0.26%
- Dow Jones: +0.07%
Among individual stocks, notable gains included Domino's Pizza (+5%), Amazon (+4%), and ServiceNow (+4%). In contrast, PayPal (-11%), Autodesk (-4%), and CrowdStrike (-4%) led the declines.
Treasury Bonds: Yields on the Rise
Treasury yields rose across all maturities. The 2-year yield advanced 2.29 basis points to 4.329%, while the 10-year yield held at 4.67%. This dynamic reflects expectations of higher rates for longer.
Global Markets: Oil and International Stocks
Outside the U.S., the picture was varied. Brent crude fell 0.55% to USD 88.06 per barrel, and WTI dropped 0.54% to USD 83.09. Both are heading for their first weekly decline in three weeks.
In Europe, stock markets closed in the green: the Euro Stoxx rose 0.96%, Germany's DAX +0.81%, France's CAC +0.91%, and the UK's FTSE +0.29%. In Asia, Hong Kong's Hang Seng advanced 0.07%, the Shanghai stock exchange fell 0.11%, South Korea's Kospi dropped 1.79%, and Japan's Nikkei 225 rose 0.38%.
What's Next?
Attention now turns to the Fed's September 15-16 meeting. Before that date, new employment and inflation data for August will be released, which will be key in determining whether the Fed ultimately decides to raise rates or hold them steady.
For now, Warsh's message made it clear that the battle against inflation is far from over. Investors should prepare for a scenario of higher rates for longer, with all that implies for markets and the real economy.
Source: La Nación