Warsh's Hawkish Jackson Hole Speech Pushes September Hike Odds Past 55%

Kevin Warsh's hawkish Jackson Hole debut pushed September rate-hike odds past 55 percent, but a dissenting investor and NVIDIA's earnings counterweight argue the bond market has it wrong.

Kevin Warsh's hawkish Jackson Hole debut pushed September rate-hike odds above 50 percent for the first time, yet a dissenting investor and NVIDIA's earnings argue the bond market has it wrong.

"The 55 percent probability is offsides," said Bill, a CNBC Investment Committee member, arguing Warsh softens once data clears.

The repricing rippled across assets. The two-year Treasury yield closed the week at 4.34 percent, up 10 basis points, while the 10-year finished at 4.73 percent, down one, flattening the two-to-ten spread to 39 basis points. Gold and Asian stocks fell after Warsh's remarks, and the Russell 2000 dropped 1.39 percent on Friday to 2,972.37, more than five times the S&P 500's 0.25 percent decline.

The stakes concentrate on the Sept. 15-16 FOMC meeting. If Warsh blinks and holds, NVIDIA — which posted $96.22 billion in Q2 revenue and guided Q3 to $108.0 billion — is the highest-beta way to press the trade, its roughly 70 percent fiscal 2028 growth outlook largely insulated from short-term rate moves.

Warsh Names Easy Credit as the Reason Policy Is Not Restrictive

In his keynote titled "In Our Time," Warsh pointed to compressed credit spreads and strong issuance as evidence that policy is not transmitting restraint. "Credit and loan markets are showing few signs of policy restraint," he said, adding "I would be hard pressed to describe broad financial conditions as restrictive." With 12-month PCE inflation at 3.7 percent and the six-month annualized rate at 4.1 percent, he told the audience "we have work to do."

The federal funds target range has held at 3.50 to 3.75 percent since the July 28-29 meeting, when the committee voted 9-3 to hold, with Cleveland's Beth Hammack, Minneapolis's Neel Kashkari and Dallas's Lorie Logan dissenting in favor of a quarter-point increase. The last move was a cut on Dec. 10, 2025. Warsh declined to offer conventional guidance — "you can call it an outline, you can call it a trail map, just don't call it forward guidance" — and closed by saying he stood "committed to a discipline, not to a decision."

The Contrarian Case and NVIDIA's Counterweight

The dissent is not confined to the bond market. Former Fed Vice Chair Roger Ferguson said Aug. 28 he expects two rate hikes and warned that standing pat would cost the Fed credibility. Deutsche Bank maintained its forecast for increases at the September and December meetings, for a total of 0.5 percentage point this year, while Nomura said the Fed has become more sensitive to near-term inflation readings.

Bill's counterargument rests on the data window ahead. The 10-year yield hit 4.66 percent on Aug. 26, up from 4.19 percent in January, yet the S&P 500 tracking ETF is still up about 13 percent year to date. NVIDIA's $96.22 billion Q2 revenue and $279 billion in locked supply commitments give traders a high-beta hedge against a Warsh retreat. Shares traded near $220 on Aug. 31, up 16.50 percent year to date. Watch the August CPI and PPI: hot readings validate the hike, cool readings weaken the odds and re-rate mega-cap growth higher.

The last time the Fed's communication shifted this sharply was the July 28-29 hold, which preceded a 9-3 vote and a 10-basis-point rise in the two-year yield. If Warsh follows through on Sept. 16, a quarter-point increase would lift one-month Term SOFR toward 3.93 percent and the bank prime rate to 7.00 percent, raising the all-in cost on every drawn revolver. If he blinks, the repricing lands hardest on the small caps that absorbed Friday's hawkish move.

This article is for informational purposes only and does not constitute investment advice.