A simple recap
What I’m watching
Two things of note this past week. The first was NVDA earnings, which was announced on 8/25/2026. And the second was Chairman Warsh’s opening remarks for the Jackson Hole Economic Symposium on 8/28/26.
NVDA earnings were strong, which was pretty much a given in my mind at this leg of the cycle. The stock rallied more than 8% on Thursday after the earnings report, which also lifted other chip-related stocks on Thursday. However, this strength only lasted for a single day before reversing completely and then some on Friday, amid some report of NVDA walking back the AI Compute Partnership Program, due to some antitrust concerns.
Friday also saw Warsh’s opening remarks for the Jackson Hole Symposium, which was much more hawkish than expected. The key points from his speech were basically that the Fed will stick to the 2% PCE inflation goal and will get the job done, and that they will have work to do until that is achieved. And, he said that the policy is not restrictive enough.
This is a notable departure from his stance and communication in his previous speeches where he was a lot less firm on the inflation topic and even hinted at alternative inflation measures. This was also noticeably at odds with the Treasury department and Bessent, who have been buying back long end treasuries in a bid to control the long end yields. And of course this is exactly the opposite of what the president wants the Fed to do.
In addition to the inflation-fighting resolution, he also reaffirmed his stance on forward guidance, which is that the Fed should not be giving much forward guidance such that the market watches the Fed instead of real economic numbers and in turn limits the Fed’s policy freedom. This is very fair but of course it is a problem for the market.
Warsh is in the hot seat right now.
On the one hand he has the dual mandate of the Fed and at present the inflation question is the more pertinent one. He needs to defend the Fed independence so that the entire system built on trust and credit of the dollar and the treasury does not collapse.
On the other hand, the president and his associates are pressuring the Fed to cut interest rates all the while the treasury department is engaging in some kind of yield curve management and vowed to buy back long end treasury bonds (or trying to manufacture a short squeeze).
He can say all he wants that the Fed is independent, but there will no doubt be political consequences if he raises rates. If the Fed doesn’t hike in September if we have a hot inflation print, then it will be his reputation and the Fed’s credibility taking a crater, which again brings political and economical consequences.
The only way out for him is that somehow the inflation data comes in cool in 2 weeks, and that lowers the need for the Fed to actually deliver on the hike. Otherwise if the inflation is strong in August, he will then have to make the decision between pissing off the president or completely destroying the Fed’s credibility and causing even greater mayhem. To me it would seem like he will have to choose to piss off the president, if inflation is hot.
All this is saying that the next 2 weeks’ economic data will be incredibly important for the short term interest rate trajectory ahead of the September FOMC. It will also have impacts to other assets, depending on how the Fed actually reacts to the data, and crucially if they will actually hike in response to a hot print.
A position or thesis
As I have talked about in numerous previous weekly recaps, I keep thinking it is hard for Warsh to lead the Fed into actually hiking. This is particularly why this recent remark from the Fed chair is concerning.
If inflation print comes in lower than feared, it might make it less urgent for the Fed to actually hike in the September meeting. Immediately after the print, we might see a rally in risky assets and perhaps in bonds as well, with possibly a steepening of the curve as the immediate short term hike probability gets reduced. However, there is a chance that Warsh and associates vote for a hike regardless, as it is unlikely for inflation to be at the 2% goal. If that happens we might see sell-offs in risk assets, and a flattening of the curve.
If the print comes in hotter than feared, after the print I would think that risk assets will sell off and the curve will flatten with short end yields higher. If the Fed did not deliver a hike in light of the hot print, we might see strong rallies across all assets, and then the curve might steepen a lot as the Fed’s credibility takes a huge hit.
Given Warsh’s tone it actually seems more likely than not that the Fed will hike rates in the short term, even if inflation comes in lower than expected, as it is unlikely to be at target. However, I continue to think that this does little to change the long term trajectory, and that Warsh might be faced with political consequences if he really delivers a hike. This means that I continue to like gold and see the 3% sell-off and any upcoming weakness in gold to be opportunities to add, while for the speculative high growth stocks that work off of lower interest rates, this might turn out to be a more prolonged hit. For companies that already have steady earnings this will be less of a problem and I favor them similar to gold.
What I got wrong or updated
The key change is that I think Warsh’s speech made me assign a higher probability that the Fed might actually deliver a rate hike.
I added SMH this week Thursday on NVDA earnings as it looked like it could run from the EMA. However, this turned on Friday, amid Warsh’s speech and the news of NVDA walking back the partnership program, which also probably stoked some fears regarding circular financing.
I’m watching this position closely. Technically speaking, it still looks pretty much intact and could easily flip back higher. But given how a lot of the AI stuff still have that speculative flair with the circular financing deals and will be particularly impacted if the Fed actually hiked rates, I might look to exit the position to wait for a better entry, if technically it fell apart.
The Ephemeral Tourist 