Warsh: “We Have Work to Do” — Traders Price In a September Hike, Gold Gets Punched – Try the Fettuccine E Salmone

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• Just a personal note – my daughter is getting married this weekend – and I am taking the rest of the week off as we prepare for this event. I will be back next week – Thanks for all of your support and kind commentary over the years, I appreciate it, more than you know.
• Try the Fettuccine e Salmone

Well, good morning and welcome to the final week of summer 2026…..Let’s take a look at what happened at Jackson Hole.

Kevy Warsh acknowledged concerns put forth by Beth and Jeff. – Remember both of these Fed chairs started screaming that rates have to go up, because inflation is not cooperating and Kevy said – I hear you.

BUT, contrary to what some may say – he DID NOT promise a rate hike in September – let’s be clear about that – he may have opened the door, but he did not commit to a rate hike and yet traders and algo’s wasted no time running betting that he’s planning on raising rates.

Speaking at the Fed’s annual Jackson Hole symposium, Warsh said:

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

There it is. Otherwise, we have work to do.

And what did the trader types, algo’s and the bond market hear?

Higher rates.

The 2-yr Treasury yield surged 11 bps to 4.34% – its biggest one-day move since March – as traders immediately repriced the odds of a September rate – now putting the chances of hike at 61% – that was a 25% increase over the odds prior to his speech.

But here is where it gets interesting because remember- the FED has much more direct influence over the short end than the long end – and while the 2-yr shot up, the 30-yr barely moved.

And THAT is important. Because Friday wasn’t another bond-market tantrum over debt, deficits, Treasury supply, Scotty Bessent or fiscal credibility.

It was a monetary policy repricing NOT a fiscal credibility event. He told us that he understands the inflation problem and is prepared to deal with it. He also said that financial conditions are not currently restrictive.

Yes, the 10 yr is kissing 4.7% and the 30 yr is kissing 5.2%, yes mortgage rates are a bit elevated now at 6.7%, but in his mind, they are not restrictive, which means they may not be high enough to finish the job…and THAT is what got everyone’s attention.

So, stocks lost a tiny bit of ground…the Dow down 9 pts, the S&P down 20 pts, the Nasdaq lost 140 pts, the Russell gave back 42 pts or 1.4%, the Transports lost 61 pts, the Equal Weight S&P gave up 33 pts, while the Mag 7 gained ground – adding 210 pts.

Now, the move in the Russell makes perfect sense – Small and mid-cap companies are more sensitive to financing costs, so when the 2-yr suddenly surges 11 bps and the market starts pricing in another rate hike – guess who’s going to feel it first?

The SMIDS. But let’s also keep this in perspective. The S&P lost 19 points. That’s it. Kevin Warsh stood up, reminded everyone that inflation remains above target, told us financial conditions aren’t restrictive, opened the door to another rate hike, sent the 2-yr screaming higher – and the S&P lost 0.25%.

Hardly panic. In fact, I’d argue THAT may be the more important message from Friday.

Now let’s talk about Gold — because it got punched in the face. Coming into Friday, Gold was trading around $4,630 – up sharply from the early-August lows – as gold bugs piled into the trade over concerns about inflation, fiscal discipline, geopolitical risk and instability in the bond market.

And then Kevy spoke. Yields surged, the dollar rallied and suddenly the move higher in Gold had the rug pulled right out from under it. By the end of the day, Gold had lost more than 3% – nearly $150 – to close around $4,455.

So why the vicious reaction? Because Gold got hit with a left punch and then a right punch. Higher Treasury yields (the left punch) increase the opportunity cost of owning an asset that pays you NOTHING – no dividend and no interest – while a stronger dollar (right punch) creates another headwind for gold.

And then add in the sudden repricing of Fed policy. On Thursday, traders were assigning a 31% chance of a September rate hike. After Kevy spoke, those odds jumped to 61%.

So suddenly the gold trade had to deal with a stronger dollar, higher yields AND the possibility that the Fed isn’t finished raising rates.

And so, it was a – Sell first. Ask questions later reaction.

Friday’s move took Gold down and THROUGH the $4,530 trendline and overnight the selling continued, taking us down to $4,396 before buyers showed up. Which leaves Gold sitting right on top of the next trendline.

And now the question becomes -Was Friday simply a Kevy-induced flush — or does Gold need a bigger reset? We’re about to find out…. because Kevy may have changed the interest-rate conversation, but he didn’t suddenly make the other reasons investors own Gold disappear.

The fiscal concerns haven’t disappeared. The debt and deficit haven’t disappeared. Geopolitical risk certainly hasn’t disappeared. And inflation hasn’t disappeared — in fact, that’s the whole reason Kevy is talking about potentially raising rates in the first place. So, don’t necessarily interpret Friday’s move as the end of the gold story. I’d think about it as a test.

If Gold can hold $4,370 (trendline support) and reclaim $4,530, then Friday may turn out to have been nothing more than a ‘shaking of the branches after a very strong August run. If $4,370 doesn’t hold? Then the reset may have further to go and that reset could get us right back to $4,200. Either way – after a 14% move off the August lows, Gold was due for a bit of profit taking.

Next up Oil…..it continued to hover in the $83 zone – which was about a 4% loss for the week – that move was about the continued chatter of a new diplomatic agreement with Iran that could normalize shipping thru the strait. And that actually creates another interesting dynamic for Kevy and the FED. If oil prices fall – then inflation eases – and that blows his whole inflation argument out of the water, so stayed tuned. But, not so fast……

This morning – oil is up 3.4% at $86.30 – after the US struck 2 Iranian rocket launchers on Larak Island over the weekend. The Iranians returned the fire – launching missile and drone strikes on 2 US air bases in Jordan and all that does is raise the temperature in the room again and just like that – they put the risk premium back into the price of oil. 1 step forward – 2 steps back.

And by now you also heard about the massive oil deal that Trump just struck with Venezuela – the administration calling it the biggest oil deal in history – and 65 billion barrels certainly gets your attention. The U.S. gets majority control over the development of 17 Venezuelan oil fields, with an initial production target of 1.5 million barrels a day. Strategically, that’s a big deal because it gives the U.S. another potentially enormous source of crude outside the Middle East.

But let’s be clear – those 65 billion barrels aren’t sitting on a dock waiting for a tanker. Venezuela’s infrastructure is a mess and it’s going to take billions of dollars and years of investment to meaningfully increase production.

So, this could be very important for long-term US energy security – but it isn’t going to suddenly knock $20 off the price of oil tomorrow morning.

There is no eco data today – but there are some important data points later in the week.

S&P Global Manufacturing & Services PMI’s, ISM Prices Paid, ISM New Orders, JOLTS report, ADP employment change and Friday’s NFP report.

Earnings? PANW and Dell report Tuesday, while Broadcom reports Wednesday afternoon along with Snowflake and HPE. After Nvidia blew the doors off last week, AVGO becomes the next test of the AI infrastructure trade. Then on Thursday we hear from Zscaler and Ciena. So, while earnings season is essentially over, AI, cybersecurity and enterprise tech are not done talking yet!

European markets are mixed – the UK closed for a holiday.

US futures are all lower…Dow futures – 135 pts, the S&P’s down 25 pts, the Nasdaq down 33 pts while the Russell is lower by 8 pts. As noted, it is the last day of August and the start of a holiday week.

The 2-yr treasury yield – which exploded 11 bps higher on Friday is down about 3 bps this morning as investors reconsider whether Friday’s reaction may have gotten a little ahead of itself.

Because here’s the thing. Yes, Kevy sounded a bit hawkish. But he DID NOT say – “We’re raising rates in September.”

The market said that. And there is a difference.

I am still in the camp that the Fed does NOTHING in September – or for the rest of this year. The bond market is already doing some of the heavy lifting, and I think Kevy is perfectly fine letting it do just that.

Remember – Warsh doesn’t want to spoon-feed the market with forward guidance. He wants the DATA to do the talking.

Remember – Traders took “we have work to do” and immediately translated it into “September rate hike.”

Maybe. But Kevy didn’t say that.

And this week there is plenty of data to do the talking – so let’s see what it says before we start the histrionics.

The S&P closed Friday at 7,711 – down just 19 pts. Stocks are not panicking. The bond market is not panicking. And with summer coming to an end and volumes still light, I wouldn’t read too much into every tick.

I see 7,650-ish as near-term support, while the more important trendline support sits closer to 7,550.

And now September – historically the most difficult month of the year for stocks – is about to begin. The Fed is in play. Iran is in play. The midterms are in play.

And everyone is about to come back from the beach. So strap in.

If you’d like to discuss your goals, evaluate the risk in your portfolio or simply get a second opinion, give me a call at 561-931-0190 or better yet – click on this link to connect. https://slatestone.com/contact-us/

I’m always happy to provide complimentary portfolio review and risk assessment.

Take good care,

Kp

[email protected]

Source: Bloomberg, CNBC, Reuters, Wall Street Journal

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