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Jackson Hole usually goes one way. The Fed chair speaks, markets brace, and the takeaway is that help is coming eventually.
Kevin Warsh did not follow the script.
His first Jackson Hole speech as chairman, delivered Friday, landed on his 100th day in the job. It was hawkish, and risk assets took it that way.
What He Said
Warsh thinks the economy is strong. Business investment is growing at its fastest pace since 2021. Corporate profits are up more than 20% on the year. Unemployment is 4.1%. Companies are borrowing cheaply and banks are lending freely.
Then the line that matters most. He said he would be hard pressed to call financial conditions restrictive.
In plain English, he thinks rates are not actually slowing anything down.
Inflation is the problem. It is running at 3.7%, well above the 2% target, and he called that target firm and fixed. The summer numbers were better than expected, but he said they do not convince him the trend has improved.
His message was simple. If inflation is not falling fast enough, the Fed has work to do.
No More Forward Guidance
The other change is one to keep in mind all year. Warsh does not believe in telling markets what he will do next, and he said so directly. No rate path, no promises, no hints.
He wants investors watching the economy rather than watching him.
The practical effect is that the data now matters more than the speeches. Expect bigger moves around inflation and jobs releases, because there is no guidance to lean on beforehand.
Rates Repriced. Bitcoin Did Not Break.
Rates markets repriced hard, and fast. Before Warsh spoke, prediction market Kalshi had a 25 basis point hike in September at around 30%, with no change the clear favourite. By the close it had flipped. The hike is now the favoured outcome at 53%.
That is a full reversal of expectations off the back of one speech. Treasury yields rose and the dollar strengthened with it.
Bitcoin fell close to 3% in the four hours after the speech, dropping from around 79,500 dollars to a low near 76,900. Nearly 500 million dollars of positions were liquidated, mostly leveraged longs.
Then buyers stepped in. Bitcoin spent the rest of the weekend grinding higher and now sits just under 80,000 dollars, roughly where it started.
That is the part worth paying attention to. This was a real hawkish surprise, and the market took it, cleared out the leverage, and refused to give up the level. Bitcoin is still up more than 20% since mid August.
Strong buyers absorbing bad news tells you more about where we are than any single day of price action does.
What To Watch
The next Fed meeting and interest rate decision is on the 17th of September 4am (AEST).
Between now and then, three things. The inflation numbers, because Warsh has told everyone he is watching them and nothing else. The US dollar and short term bond yields, as the cleanest read on whether the hawkish move sticks. And whether Bitcoin holds the 77,000 dollar area on the next shock, since that is the level buyers just defended.
At 53%, the hike is still close to a coin flip. It can move either way from here.
Ongoing: US forces struck Iran’s Larak Island, the first attack on the country since late July, targeting launchers preparing to fire mines into the Strait of Hormuz. Tehran has vowed to retaliate. That has fed some bearish price action into the start of the week.
Worth watching how it gets absorbed. Friday’s selloff lasted four hours before buyers cleared it out. Dips in a market this well bid have tended to be shallow and short lived, and they have not come around often. Whether that pattern holds through a genuine escalation in the Gulf is the question for the week.
Stormrake Spotlight: Pax Gold (PAXG) ($4,605)
Stormrake Spotlight: Pax Gold (PAXG) ($4,605)
