Warsh Won’t Give Wall Street a Roadmap. Is a Rate Hike Coming Anyway?VIEW IN BROWSER
Nearly a decade ago, HBO introduced viewers to The Young Pope. In the show, Jude Law plays Pius XIII, the newly elected head of the Catholic Church. And almost immediately, he drives the Vatican’s communications team crazy. 
They want visibility. Accessibility. A clear public message. Pius wants the opposite. He refuses to be photographed. He avoids television appearances. And he certainly doesn’t feel the need to explain himself every five minutes. His basic theory is simple: Mystery creates power. Federal Reserve Chair Kevin Warsh seems to have reached a similar conclusion about monetary policy. For years, Wall Street has been trained to expect a Fed chair who explains the central bank’s thinking in exhaustive detail. Every adjective gets parsed. Every press conference becomes an exercise in reading tea leaves about where interest rates are headed next. Investors want a roadmap. Warsh basically walked into Jackson Hole, Wyoming, on Friday and said: I’m not playing that game. In his first Jackson Hole speech as Fed chair, Warsh once again rejected the idea that he should give Wall Street a clear roadmap for interest rates. But that didn’t stop investors from trying to read between the lines. By the time Warsh finished speaking, traders had sharply increased their bets that the Fed could raise rates as soon as September. That came just days after a new Personal Consumption Expenditures (PCE) price index report showed inflation remains stubbornly above the Fed’s 2% target. So, in today’s Market 360, let’s look at what this week’s inflation report really told us, what Warsh just told Wall Street at Jackson Hole and what it could mean for stocks as we head into September.
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What the PCE Report Really SaidLet’s start with Wednesday’s inflation report. The Personal Consumption Expenditures (PCE) index rose 0.2% in July, while the 12-month inflation rate held at 3.7%. Core PCE, which strips out volatile food and energy prices, also rose 0.2% for the month and held at 3.3% annually. So, on the surface, the Fed’s preferred inflation gauge shows prices remain stubbornly above its 2% target. But there was a more encouraging number buried in the report. The Dallas Fed’s trimmed-mean PCE, which removes the largest monthly price swings at both ends of the spectrum, came in at just 2.3%. It is designed to provide a cleaner look at persistent inflation by filtering out one-off shocks, such as sharp moves in energy prices. And lately, it has been remarkably stable. Over the past six months, the 12-month trimmed mean PCE rate has stayed between 2.3% and 2.4%. That sounds like pretty good news. But Warsh clearly isn’t ready to declare victory. Warsh’s Message From Jackson HoleSpeaking Friday morning in Jackson Hole, Warsh acknowledged that the summer inflation readings have been better than expected. But he said they “do not tell me that underlying trends have meaningfully improved.” And he made it clear that he isn’t putting too much weight on any one inflation measure. Warsh noted that more than half of the individual components in the PCE index have risen more than 3% over the past year. “None of these measures are perfect, but they all tell a similar story,” Warsh said. “Inflation is running above our 2% target.” That led him to a simple conclusion: The Fed’s focus should be on prices. This is understandable. Even though many of us would like lower rates, consumer and business spending remain solid. The labor market has cooled, but Warsh still sees the economy as fundamentally healthy. In other words, Warsh isn’t looking at an economy that needs lower interest rates. He’s looking at one that appears capable of handling current, and potentially tighter, monetary policy while the Fed finishes the job on inflation. But if you were hoping Warsh would tell you exactly what would trigger that next move, you were out of luck. Warsh once again rejected the idea that the Fed should provide Wall Street with a detailed roadmap. He argued that forward guidance and mechanical “reaction functions” may sound useful in theory but often work much worse in practice. His concern is that if markets move based on what the Fed says, and the Fed then looks to those same market moves for clues about the economy, policymakers can end up trapped in what he called a “hall of mirrors.” Warsh wants the Fed to spend less time telling markets where to go and more time listening to what markets and the economic data are saying. As he put it: “I stand here today committed to a discipline, not to a decision.” That didn’t stop Wall Street from reaching a conclusion, though. After the speech, traders raised the odds of a quarter-point rate hike in September to about 56%, up sharply from the day before. So, Warsh didn’t give investors the roadmap they wanted. But markets clearly heard a hawkish message. And here’s the key thing, folks. Warsh remains bullish on the potential for artificial intelligence to boost productivity and economic growth. The Bigger AI StoryTo be honest, this is the part I was waiting to hear Warsh comment on since taking the helm at the Fed. And he didn’t disappoint. Warsh said the “potential for substantially higher growth is on the rise,” pointing specifically to the enormous amounts of capital pouring into AI-related infrastructure. He also raised the possibility that AI could lead to a productivity boom. That matters for monetary policy. If AI allows businesses to produce more with the same amount of labor and capital, the economy could grow faster without generating the same inflationary pressures we would normally expect. Warsh acknowledged that plenty of questions remain. The Fed doesn’t yet know how large the productivity boost will be, when it will arrive or exactly how the benefits will flow through to businesses, consumers and workers. But the important thing is that Warsh seems to be more in tune with this than his predecessors. What does this mean for us? I’ve said for some time that the AI Revolution and data center boom represent a once-in-a-lifetime investing opportunity. Frankly, I don’t expect to see another technology investment boom like this in my lifetime. And despite the enormous gains we’ve already seen, I still believe we’re only in the early innings. That’s why I remain so focused on finding fundamentally superior AI- and data center-related stocks. But as this boom evolves, I don’t expect yesterday’s winners to automatically be tomorrow’s winners. A massive new effort is now taking shape across America’s national laboratories. President Trump has compared it to a new Manhattan Project for AI. At its center is a massive network of government supercomputers and AI infrastructure that I call Golden Dawn. The goal is to harness AI to accelerate scientific breakthroughs in everything from energy and medicine to advanced materials and quantum computing. And I believe the companies helping build this infrastructure could represent the next major group of AI winners. That’s why I recently put together a special presentation called The AI Reset of 2026. In it, I explain what Golden Dawn is, why I believe it could reshape the AI landscape and, most importantly, which companies could be positioned to profit as this next phase unfolds. So, if you own AI stocks today or you’re looking for the next wave of opportunities in this market, I strongly encourage you to check it out. Click here to watch my AI Reset of 2026 presentation now. Sincerely, |
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