Warsh strikes hawkish tone in Jackson Hole debut

For the week ending 28 August 2026

As of midday Friday, global equities were firmer on the week amid strong earnings and guidance from Nvidia and a number of software vendors. The yield on the U.S. 10-year Treasury was little changed at 4.70%, while the price of a barrel of West Texas Intermediate crude fell US$4 to US$82.65. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 16.9 from 17.5 a week ago.

Macro news

Warsh says the Fed has work to do on inflation

Federal Reserve Chairman Kevin Warsh struck a hawkish tone in his inaugural keynote address at the annual Jackson Hole symposium, saying while inflation readings over the summer have moderated, the data don’t suggest the overall trend has meaningfully improved. He added that the Fed has “work to do” if inflation is not moving toward its fixed 2% target with speed, and he said he would be hard pressed to describe current financial conditions as restrictive. However, he stopped well short of committing the Fed to a rate hike at its upcoming September meeting. Odds of a hike moved up after his remarks and stood close to 50/50 on Friday morning.

Earlier in the week’s preferred inflation measure, core PCE, came in as expected, rising 0.2% from the month before and up 3.3% year over year.

As central bankers began to gather at Jackson Hole on Thursday, Kansas City Fed President Jeff Schmid said current rates are not restraining the economy while Cleveland Fed President Beth Hammack said she believes now is the time to act on raising interest rates. A number of FOMC members expressed no concerns over Fed independence.

U.S. ups economic pressure on Iran

The Trump administration this week escalated its economic campaign against Iran. The Treasury Department announced sanctions on 60 Iran-linked entities, individuals, and vessels, targeting brokerage firms and shipping networks used to facilitate Iranian trade.

Treasury Secretary Scott Bessent outlined what he called “Operation Economic Outcast,” warning that the U.S. will target all revenue sources linked to Iran’s Islamic Revolutionary Guard Corps (IRGC). Bessent added that digital assets, gold, aviation, and shipping activities would be scrutinized, warning that secondary sanctions remain a powerful tool. He also indicated that additional measures targeting major financial institutions could follow.

Iran responded by declaring that it is fully prepared for Washington’s pressure campaign and warned that the aforementioned commercial links would not be easily severed. Beijing also criticized the latest sanctions and pledged to protect Chinese interests, signalling that tensions between Washington and Beijing could rise if Operation Economic Outcast expands further. These measures suggest that Washington is seeking to raise the costs of doing business with Tehran without confronting the broader economic and diplomatic fallout that could come from sanctioning large Chinese banks. Analysts say the sanctions are designed to allow China to change its behaviour without its banks being targeted.

Iranian political leaders publicly supported a return to negotiations this week, though the IRGC has shown no such willingness. Meanwhile, Oman and Iran reportedly reached an agreement to establish a temporary navigation corridor through the Strait of Hormuz while demining the waterway. On Thursday, Qatar reportedly also signed onto the accord. That deal in turn was meant to facilitate broader talks to reopen the waterway. That same day, however, the Wall Street Journal reported that the Trump administration has repeatedly told mediators it has no interest in going back to the terms of the memorandum of understanding with Iran that was reached in June. Instead, the president is reportedly willing to give his economic pressure campaign time to work.

The U.S. naval blockade and economic pressure campaign have prompted widening civilian unrest in Iran, including labour protests and panic-buying, the Wall Street Journal also reported on Thursday.  

U.S.–Canada trade spat intensifies as deal falls apart

After agreeing to the outline of a deal early last week, talks broke down last Friday night, with both sides blaming each other for the rupture. Over the weekend, the U.S. imposed 50% tariffs on roughly US$20 billion of Canadian exports while Canada announced similar measures on U.S. exports, slated to take effect on September 8. President Trump then upped the ante, announcing plans for 50% tariffs on Canadian automobiles, trucks, auto parts, and steel beginning January 1, 2027. The dispute broadened further as Ontario Premier Doug Ford warned that Canada could restrict exports of electricity and critical minerals if trade relations continue to deteriorate.

In other news north of the U.S. border, Quebec’s October 5 provincial election could determine whether the province holds another referendum on secession from Canada. The Parti Québécois, which is currently leading in the polls, has promised to hold such a vote if it wins. It would be the third referendum on this issue since 1980.

On Friday, it was reported that the Canadian economy grew at a 3.3% annualized pace in Q2, falling just shy of estimates.

Quick hits

• Q2 U.S. GDP was unrevised at a 1.5% annual growth rate though personal consumption remained solid, growing at a 3.4% pace. U.S. corporate profits rose to a record US$4.83 trillion annual pace in Q2, which is equivalent to 18% of national income.
• According to Axios, the Trump administration is in talks with Venezuela’s interim government about taking an ownership stake in the country’s oil resources. The deal would more than double U.S. oil reserves, as Venezuela currently has the world’s largest proven reserves, Axios reported.
• Barron’s reported that analysts now expect major datacentre operators to spend more than US$1 trillion on capital expenditures, reflecting continued AI infrastructure investment.
• The Case-Shiller U.S. home price index rose 1.5% year over year in June while new homes sales fell 10.5% in July from the month before, though June sales were revised way up, to a gain of 7.6% from an initial rise of 1.6%.
• German GDP grew 1.0% year over year in the second quarter, exceeding expectations. Germany’s ifo Business Climate Index improved to 88.8 from 86.7.
• China Daily warned against excessive reliance on broad stimulus measures, while Goldman Sachs estimates that Chinese growth has slowed to around 4%, increasing expectations for monetary easing.
• The IMF said risks to the global outlook remain tilted to the downside and warned that elevated bond yields and inflation remain concerns.
• Legendary hedge fund manager Stanley Druckenmiller, a mentor to Treasury Secretary Scott Bessent, criticized recent Treasury market interventions in a Wall Street Journal opinion article, arguing that they blur the line between debt management and monetary policy and may delay needed fiscal reforms.
• Treasury officials indicated regular auction schedules will continue, with the next bond operation scheduled for September 9.
• The Bank of Korea raised its policy rate to 3.0% and lifted its 2026 growth forecast to 3.3%, citing strength from the semiconductor sector.
• Analysts at Goldman Sachs estimate that oil exports from the Persian Gulf have recovered to about two-thirds of pre-war levels.
• Saudi Arabia is reportedly exploring state-backed war insurance for shipping companies operating in the region.
• Russia is reportedly preparing to intensify attacks on Ukraine after concluding a negotiated settlement is unlikely.
• President Trump signed an emergency order on national security grounds that is designed to limit the use of certain foreign-made transformers and critical energy equipment in the U.S. electric grid.
• The U.S. July trade deficit widened to US$118.8 billion from US$101.4 billion in June on a surge in AI-infrastructure-related and other capital goods imports.
• CIA Director John Ratcliffe reportedly travelled to Moscow to warn Russia against actions that could threaten NATO countries and to reinforce the U.S.’ commitment to Article 5, which states an attack on one member is an attack on all members. President Trump on Thursday dismissed concerns over a potential attack on a member state. Shortly thereafter, however, Russia warned that it could strike British military targets inside and outside Ukraine if Kyiv uses British cruise missiles to strike targets deep inside Russia.