- Solve real problems with our hands-on interface
- Progress from basic puts and calls to advanced strategies
Interactive Options Course
Posted August 31, 2026 at 11:45 am
When President Donald Trump nominated Kevin Warsh to run the Federal Reserve, Wall Street pulled out the old file.
As a Fed governor through the 2008 crisis, Warsh had built a reputation as an inflation hawk.
Then the file went stale.
Trump wanted cheaper money. Warsh, through his first months in the chair, gave traders little to work with, and his July press conference left the market unsure which inflation yardstick he was even steering by.
Then one speech completely shifted the script. Warsh used his Jackson Hole keynote last Friday, his 100th day as chairman, to say the thing the market had spent the summer waiting to hear.
The Fed is willing to hike rates as inflation remains far from the target.
Warsh reaffirmed that 2% PCE inflation is the Fed’s “firm, fixed target” and said inflation remains too high.
He also pushed back against the idea that monetary policy is already restrictive.
“On balance, I would be hard pressed to describe broad financial conditions as restrictive,” Warsh said.
For a central banker, that is close to conceding that policy is not tight enough.
If financial conditions are not sufficiently tight, the Fed has room to raise rates without believing it is deliberately crushing economic activity.
Odds of a September rate hike jumped to as high as 66% on Monday, according to the CME FedWatch tool.
A second hike is now fully priced in by January 2027. A third hike in 2027 carries a 35% chance.
BofA Securities economist Aditya Bhave said Warsh’s speech was firmly hawkish and that the bank, which has long called for a September increase, came away more confident.
He added a warning: “The onus is now on him to deliver a hike in September,” unless incoming jobs and inflation data are very soft.
That creates a credibility test.
The reaction in interest-rate markets was immediate following Warsh’s Jackson Hole speech.
Short-term yields rose faster because investors expect tighter Fed policy, while long-term yields barely moved.
That produced what bond traders call a flattening of the yield curve.
Two-year Treasury yields rose as much as nine basis points on the speech, while the 30-year was roughly flat and the dollar gained between 0.2% and 0.6% against the other Group of 10 currencies. A basis point is one hundredth of a percentage point.
On Monday, the two-year yielded 4.34%, nearly 60 basis points above the top of the Fed’s current 3.50% to 3.75% range. The 30-year sat at 5.24%.
The S&P 500 closed Friday at 7,711.76, about 1.3% below the record it set on Aug. 13.
That leaves the data to speak for Warsh. The August jobs report and the August inflation readings both land before the Sept. 15-16 meeting.
Two soft numbers would give him room to wait.
Anything else, and the market has already written his decision for him.
—
Originally Posted August 31, 2026 – Fed Rate Hike Bets Are Back: Is Warsh Turning Into an Inflation Hawk?
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Benzinga and is being posted with its permission. The views expressed in this material are solely those of the author and/or Benzinga and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.
Spot currencies are not available at IBKR Singapore.
Municipal Bonds are only available from Interactive Brokers for IBKR LLC, IBKR Canada, IBKR Hong Kong, IBKR Australia and IBKR Singapore entities.
Related Articles
Join The Conversation
For specific platform feedback and suggestions, please submit it directly to our team using these instructions.
If you have an account-specific question or concern, please reach out to Client Services.
We encourage you to look through our FAQs before posting. Your question may already be covered!