Jackson Hole Was Hawkish but Tolerable: Aug. 28, 2026 

Chair Warsh reiterated the Federal Reserve’s inflation focus during his inaugural Jackson Hole symposium presentation this morning, resulting in a hawkish repricing across the yield curve. In today’s trading, the fixed-income complex now signals a hike at the central bank’s September meeting with a 56% degree of certainty, as the chief pointed to strong economic activity and full employment as reasons that warrant a concentration on price pressures rather than the labor part of the institution’s dual mandate. Still, the monetary policy leader was relatively quiet on the timing of the committee’s next move, and his success in striking the delicate balance of prioritizing cost forces without directly committing to a rate increase sparked rallies in stocks, the greenback and duration. Indeed, bifurcated moves are occurring throughout the maturity structure. The shorter end is rising significantly while the longer tenors decline, leading to a much flatter compound. Equities are descending modestly at this juncture, however, with 6 of the 11 principal sectors and all 4 of the major domestic benchmarks in the red. The small-cap Russell 2000 is plunging the most and is especially underperforming as it’s disproportionately affected by tighter financial conditions. Elsewhere, the stronger dollar is hurting commodities and cryptocurrencies, hedging demand is sinking as volatility protection instruments see lighter premiums and prediction markets are catching bids.

Investors Have Been Worried About Duration, Not Rate Hikes

This morning’s presentation was hawkish but tolerable, as investor anxieties in the past few weeks have been due to climbing long-end yields, not a potential rate increase. Chair Warsh’s ability to soothe market participants via a commitment to quell price pressures without necessarily signaling a hike offers a conducive environment for risk assets to rally alongside an alleviation for duration. The speech essentially reduced inflation expectations while raising central bank credibility, which benefits 20- and 30-year bonds tremendously. Another thing that’s likely to bolster those distance tenors is a possible mean reversion on term premiums, which are now at their highest levels since 2011, indicating significant concern related to Washington’s expanding budget deficit and the adverse implications of the government’s increasingly limited capacity to service its debt over time.

International Roundup

Canada’s GDP Growth Picks Up

Canada’s gross domestic product growth accelerated during the second quarter and the January through March period’s result was revised from flat to a 0.1% expansion, according to Statistics Canada. With a tailwind of growing exports, stronger household spending and higher levels of business capital investments, second-quarter GDP was up 0.8% quarter over quarter (q/q).

Exports rose 3.6% during the period. It was the largest jump since the first three months of 2023. The value of cars and light trucks that traveled to foreign markets soared 27%, in part due to a rebound in motor vehicle manufacturing after output fell in the preceding two periods. Foreign demand for energy products, intermediate metal items and industrial machinery/equipment also supported export volumes. At the same time, imports grew only 0.3%, a notable deceleration following the first quarter’s 3.1% ascent. The weak showing resulted from a decline in domestic demand for unwrought gold that partially offset increased imports of tires, automobile parts, basic chemicals and computers. Unlike exports, imports detract from a country’s GDP.

Other tailwinds for GDP included more vibrant business investment in medium and heavy trucks.  The trend, along with the buildout of AI technology and increased purchases of machines and equipment pushed business investment to its highest level since the second quarter of 2024. From a consumer perspective, households curtailed spending on gasoline and food but plowed more money into investments products, such as mutual funds. They also opened their purses at automobile dealers and dished out more for rent.

Tokyo Inflation Strengthens Expectations for Rate Hike

Prices excluding fresh food in Tokyo were up 1.8% year over year (y/y) in August, according to the Consumer Price Index, which has now risen for three consecutive months. The result matched the economist consensus estimate after depicting a 1.7% y/y July inflation rate. The Tokyo data often point to future results from the national CPI. As such it is likely to put more pressure on the Bank of Japan to further tighten its monetary policy. Other variations of the Tokyo CPI were hotter with the headline and the version without fresh food and energy climbing 1.9% and 2%. The month over month rate for the ex-food and energy version, furthermore, went from 0.4% in July to 0.7%. The metrics were driven by dining out becoming more expensive as restaurants have passed higher costs onto customers. Rents, certain durable goods and health care costs also contributed to inflation. The prices pressures are occurring despite the Japanese government dishing out subsidies for gasoline, electrical utilities and natural gas.

And Unemployment Falls

Japan’s July unemployment rate fell from 2.5% to 2.4% last month, slipping below the economist consensus estimate for an unchanged result. As the country struggles with declining birth rates and an aging population, labor concerns and potential wage pressures have been a critical consideration for policymakers seeking to tame inflation. While the lower unemployment rate points to a shortage of workers, the country’s July ratio of job openings to job applications was unchanged at 1.18. Economists expected a slight increase to 1.19.