Author:Rita
Federal Reserve Chairman Warsh's hawkish debut at Jackson Hole rattled markets, but he gave no clear signal of an imminent rate hike. On August 28, Nomura released its US Economic Weekly, noting that Warsh emphasized the importance of the inflation target, hinting that policy may need to respond if inflation does not decelerate at a sufficient pace. Nomura expects the August core PCE to rise by around 0.2% month-on-month, which would be enough to support the Fed staying on hold, but sensitivity to data has increased significantly.
Warsh downplayed recent dovish signals from inflation and employment data in his speech. He minimized the significance of recent benign inflation readings, stating he did not believe the trend had shown any improvement. He unexpectedly downplayed the cooling of wage growth, pointing out that wages have long failed to be an effective indicator of underlying inflation trends. Regarding inflation expectations, Warsh acknowledged they appeared generally stable, but added that "throughout economic history, market-based measures of inflation expectations often appear strong and durable until they are not," and stated that "close monitoring is warranted." Warsh also acknowledged market confusion following the July press conference, attempting to clarify the rationale for avoiding forward guidance. He walked back from his previous statement that limited guidance could generate "unfiltered" market signals, noting market participants will always try to anticipate the Fed's next move.
Three Key Data Points Suggest the Fed Will Stay on Hold
The August employment report is expected to show resilience. Nomura forecasts nonfarm payrolls to increase by 60k, with July's negative reading likely being temporary. Private payrolls are expected to rise by 45k, while government payrolls rebound from the weakness in local government education seen in July. The unemployment rate is expected to fall to 4.0%, the lowest since January 2025. Average hourly earnings are forecast to rise 0.4% month-on-month, partly benefiting from favorable calendar effects in August.
Initial jobless claims remain low, ADP employment is stable, and the services PMI employment index rose to its highest level since January 2025. Warsh expressed optimism about the labor market, viewing it as "quite stable" and "consistent with full employment."
Capital expenditure continues to accelerate. Core capital goods shipments rose 1.4% month-on-month in July, with June's growth revised up to 2.4%, marking the fastest three-month average growth rate since January 2022. Capital goods imports recorded the largest monthly increase on record, and data from trading partners suggests tech-related imports may rise further. Nomura revised its Q3 GDP tracking forecast up from 2.7% to 3.6%, with both personal consumption and business investment stronger than previously expected.
Upside Inflation Risks Persist, September FOMC is a Key Window
Nomura expects core inflation to gradually ease in the second half of the year, primarily driven by easing tariff pressures, falling crude oil prices, and slowing wage growth. Q4 core PCE inflation is forecast at 3.3%, or around 3.1% after accounting for BEA methodology adjustments. The AI investment boom poses upside risks to price pressures, as AI-driven storage chip shortages and supply chain disruptions from the Iran war could trigger a second wave of goods inflation.
On the policy front, Nomura expects the Fed to stay on hold indefinitely, with risks tilted toward tightening. Most officials appear comfortable with a wait-and-see stance. Warsh's speech contained no clear signal for a near-term hike, and benign inflation data is sufficient to keep policy unchanged for now. However, uncertainty around the policy path has increased significantly. Warsh's hawkish tone implies that if the disinflation process stalls, rate hikes could be back on the table.
Hawkish Tone Set, Rate Hike Signal Still Lacking
Warsh's Jackson Hole speech was more hawkish in tone than markets had expected, but it provided no explicit rate hike signal. The August employment report and inflation data will be key inputs for the September FOMC decision. Nomura maintains its base case of the Fed staying on hold, believing Warsh currently prefers to watch the data rather than act immediately. However, the uncertainty surrounding the policy path has increased significantly.
Disclaimer
This article is Chaoxiang Research's summary and interpretation of a third-party brokerage research report (Nomura Securities, August 28, 2026), combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments cited in the text are the views of the brokerage's analyst, representing only the stance of their institution, and do not represent the views of Chaoxiang Research, nor do they constitute any investment advice.
Markets involve risks, and decisions should be made independently. This article should not be used as a basis for trading any securities.
