Written by: Rita

Federal Reserve Chairman Warsh's hawkish debut at Jackson Hole shook the market, but he did not clearly hint at a recent rate hike. On August 28, Nomura released its weekly report on the U.S. economy, indicating that Warsh emphasized the importance of the inflation target, suggesting that if inflation does not decline at a sufficient pace, policy may need to respond. Nomura expects the month-over-month increase in core PCE for August to be about 0.2%, which is enough to support the Fed in maintaining its current stance, but the sensitivity to the data has significantly increased.

Warsh was dismissive of the dovish signals from recent inflation and employment data in his speech. He downplayed the importance of recent favorable inflation readings, stating he does not believe there has been any improvement in the trend. He unexpectedly downplayed the significance of the cooling wage growth, pointing out that wages have long failed to serve as an effective indicator of potential inflation trends. Regarding inflation expectations, Warsh acknowledged that they appear stable overall but added that “historically in economics, market measures of inflation expectations often seem strong and persistent until they are not,” and stated “we must watch closely.” Warsh also acknowledged the market confusion following the July press conference, attempting to clarify the reasons for avoiding forward guidance. He retracted his previous statement that limited guidance could produce “unfiltered” market signals, noting that market participants will always try to predict the Fed's next move.

Three key data points suggest the Fed will stay put

The August employment report is expected to show resilience. Nomura expects non-farm employment to increase by 60,000, and the negative growth in July may be temporary. Private sector employment is expected to increase by 45,000, while government employment rebounds due to the weak local government education employment in July. The unemployment rate is expected to drop to 4.0%, the lowest since January 2025. Average hourly earnings are expected to rise 0.4% month-over-month, partly benefiting from favorable calendar effects in August.

The number of initial unemployment claims remains low, ADP employment is stable, and the services PMI employment index has risen to its highest level since January 2025. Warsh is optimistic about the job market, believing the labor market is “quite stable” and “consistent with full employment.”

Capital expenditure continues to accelerate. July core capital goods shipments rose 1.4% month-over-month, with June's growth revised up to 2.4%, and the three-month average growth rate is the fastest since January 2022. Capital goods imports recorded the largest monthly increase in history, and trade partner data indicates that technology-related imports may rise further. Nomura has raised its third-quarter GDP tracking forecast from 2.7% to 3.6%, with personal consumption and business investment both stronger than previously expected.

Upward inflation risks remain, September FOMC is a key window

Nomura expects core inflation to gradually ease in the second half of the year, mainly driven by reduced tariff pressures, falling crude oil prices, and slowing wage growth. Core PCE inflation for the fourth quarter is expected to be 3.3%, approximately 3.1% after adjusting for BEA methodology. The AI investment boom poses upside risks to price pressures, and shortages of AI-driven memory chips and supply chain disruptions from the Iran war could trigger a second wave of commodity inflation.

In terms of policy, Nomura expects the Fed to remain on hold indefinitely, with risks skewed towards tightening. Most officials are satisfied with a wait-and-see approach. Warsh's speech did not clearly suggest a recent rate hike, and favorable inflation data is sufficient to maintain current policy. However, uncertainty regarding the policy path has significantly increased, and Warsh's hawkish tone means that if the anti-inflation process is interrupted, a rate hike could be brought back onto the agenda.

The hawkish tone has landed, but signals for a rate hike are still lacking

Warsh's speech at Jackson Hole was more hawkish in tone than the market expected, but it has yet to provide clear signals for a rate hike. The August employment report and inflation data will be key inputs for the September FOMC decision. Nomura maintains its baseline judgment that the Fed will remain on hold, believing that Warsh is more inclined to observe data rather than take direct action at this stage, but uncertainty regarding the policy path has significantly increased.

Disclaimer

This article is an organization and interpretation of third-party brokerage research reports (Nomura Securities, August 28, 2026) by Chaoxiang Research, combined with the organization of public market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the article are the opinions of the analysts of that brokerage and only represent the stance of their respective institutions; they do not represent the views of Chaoxiang Research and do not constitute any investment advice.

The market has risks, and decisions should be made independently. This article should not be used as the basis for buying or selling any securities.