Warsh Hawkish But Noncommittal

Stocks are higher and Mortgage Bonds slightly lower but vacillating and extremely volatile after Fed Chair Kevin Warsh’s Jackson Hole Speech.

Kevin Warsh Jackson Hole Speech Breakdown

Fed Chair Kevin Warsh delivered his Jackson Hole speech, striking a notably more hawkish tone than before, but stopped short of committing to a rate hike.

Warsh said that if the Fed was not confident that inflation was moving towards their 2% goal, that they have work to do – which means hike rates. He also reaffirmed that the 2% target is fixed and firm.

He downplayed some of the cooler summer inflation readings, saying that they do not tell him that underlying trends have meaningfully improved.

Warsh believes that the economy is strengthening, consumer demand is healthy, and that broader financial conditions are not restrictive.

On the labor market, he believes that the unemployment rate at 4.1% and very low jobless claims are consistent with full employment.

He reiterated his belief that a quieter Fed is better able to meet their objectives and that forward guidance has overstayed its welcome. He does not believe in making big commitments that can inhibit the Fed’s freedom to make the right call.

Bottom line – Warsh was definitely more hawkish in tone and alluded to a potential hike if inflation does not improve, but he did not commit to a hike. The Fed Futures, or chance of a hike in September, increased from 35% yesterday to 48% this morning. There is a 100% chance priced in of at least one 25bp hike by year end.

The Bond market has been vacillating and volatile, but it’s only slightly lower after things have settled. Yields were a little higher, but have returned to unchanged.

Cleveland Fed President Beth Hammack Comments

We also heard from voting Fed member, Cleveland Fed President Beth Hammack. She thinks the Fed needs to hike right now to bring down inflation.

She explained that even with recent slowing inflation data, she is worried about the impact inflation is having on household budgets. But if the Fed were to hike, it would likely not bring down the areas where inflation has been rising, like oil/gasoline, and cause consumer debt payments on credit cards, car loans, and other things to rise.

QCEW

The BLS released their latest QCEW (Quarterly Census of Employment and Wages) report, which revises and provides the real data for job growth from Q1 2025 to Q1 2026.

The BLS originally reported that there were 273,000 jobs created over that year-long period, which was very weak to begin with. It has been further revised lower by 79,000, which means that they took away almost 30% of the jobs they said were created.

On average, that means that over that year-long period, there were only about 16,000 jobs created per month, which is very weak.

All of the downward revisions came in the private sector. Government jobs were revised higher by 99,000, but private sector jobs revised lower by 178,000, adding to the weakness of the report.

News Next Week

Tuesday: JOLTS

Wednesday: ADP Employment Report, Mortgage Apps

Thursday: Jobless Claims

Friday: BLS Jobs Report

Technical Analysis

Mortgage Bonds have been very volatile this morning after Warsh’s speech. They were much lower after Warsh started speaking, testing support at 101.18. They have since recovered much of those losses and are now battling with support at the 101.39 Fibonacci level and 25-day Moving Average. We must remain on guard because if Bonds lose this fight with support, there is a lot of room to the downside.

The 10-year is better behaved and after initially moving higher, is trading near unchanged levels and battling with the 25-day Moving Average.