Daily Brief – Walking the Warsh

Walking the Warsh

The key event of the 2026 Jackson Hole Symposium was undoubtedly Fed Chairman Kevin Warsh’s Speech on Friday afternoon. We wrote this week on just how desperate the market was to hear from the Fed Chair about how his central bank would tackle the challenge of persistently rising inflation. There was certainly plenty of volatility and directional change kicking about in the market following the Chairman’s speech. However, as this week progresses it is likely that the market will still be coming to terms with whether or not it now feels it understands today’s Federal Reserve.

The Chairman’s speech was published online at the same time as he began reading it in Jackson Hole, Wyoming. Immediately traders began scouring the document for information. The initial knee-jerk reaction in the US Dollar was downward, with EURUSD and GBPUSD lurching upward in response to a declining greenback. However, prices were rejected at session highs and major Dollar crosses began to retrace to their mid-August levels. This level is significant as it marks the moment at which the Treasury announced its shock policy of doubling the size of its planned Treasury buybacks. The key headline crossing terminals was Kevin Warsh’s commitment to the PCE objective (2%) and his observation that there may be ‘work to do’ to get there.

Most Dollar crosses were unable to extend beyond key levels and faced heavy technical pressures that denied a re-test of prices observed prior to August 19th/20th. Seemingly marking Warsh’s test as passed, equity markets rallied following initial losses and the Dollar followed suit lower once again. Despite that initial failure to extend beyond intra-month levels, there were some material changes which have endured from the speech. Most notably, markets have now pushed their expectations for the Fed’s September meeting into hiking territory. Traders also moved to price in a second hike by March 2027. As a result, real yields moved measurably higher providing a potential economic signal for a stronger Dollar in the sessions ahead.

Discussion and Analysis by Charles Porter

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