Federal Reserve Speech and Inflation Outlook

Kevin Warsh, the Federal Reserve Chair, delivered a hawkish keynote at the Jackson Hole Economic Policy Symposium, covering artificial intelligence, forward guidance and current economic conditions. He emphasized that underlying inflation trends have not "meaningfully improved" and reiterated the Fed’s focus on price stability. Warsh cited the personal consumption expenditures (PCE) price index rising 3.7% year‑over‑year in July, with the core PCE (excluding food and energy) up 3.3% YoY. He noted the 12‑month PCE change at 3.7% and the six‑month change at 4.1%, while comparable CPI measures remain elevated. The Fed’s 2% long‑term inflation target remains unmet.

The speech was perceived as hawkish, prompting the CME FedWatch tool to lift the probability of a 25‑basis‑point rate hike in September to over 59%, up from roughly 35% the previous day. Former Boston Fed president Eric Rosengren described the comments as "generally hawkish."

Market Reaction – Equities, Yields and Currency

U.S. equity indices closed lower on Friday: the S&P 500 slipped 0.3% to 7,709.18 points, the Dow Jones Industrial Average settled at 53,559.34 (just under flat), and the Nasdaq Composite fell 0.5% to 26,402.42. Over the week, however, the S&P 500 and Dow each rose 0.5%, while the Nasdaq added 0.9%.

Treasury yields moved higher after Warsh’s remarks. The benchmark 10‑year yield rose 5.3 basis points to 4.725%, and the 2‑year yield climbed 12.2 basis points to 4.354%. The bond market has been volatile, with longer‑term maturities under pressure from inflation concerns, corporate debt issuance issues, and the expanding U.S. national debt, which recently surpassed $40 trillion.

The U.S. dollar weakened by nearly 1% during the week, prompting investors to shift into hard assets such as gold and Bitcoin. Gold spot fell 3.42% and Bitcoin dropped 3.51% on Friday, reversing earlier gains. The dollar recovered on Friday following Warsh’s speech, while gold and crypto cooled their advances.

Nvidia Earnings and AI‑Driven Market Boost

Nvidia Corp powered the market’s weekly advance, surging almost 9% on Thursday after reporting quarterly revenue of $92.22 billion—a 106% year‑over‑year increase. The company forecast current‑quarter revenue of $108 billion ±2% and projected fiscal‑year‑2028 revenue growth of about 70% YoY, citing supply‑constrained conditions. This earnings beat added roughly $440 billion to Nvidia’s market capitalization and lifted other Magnificent Seven members: Meta Platforms, Apple, Microsoft, Alphabet and Amazon each rose between 1.2% and 4%.

Jones Trading’s chief market strategist Michael O’Rourke noted that hyperscalers and Magnificent Seven stocks have historically been less sensitive to rate hikes, but the large debt loads taken on to fund capex spending are now a concern.

Middle‑East Conflict, Sanctions and Oil Market

Friday marked six months since the United States and Israel launched joint missile strikes against Iran. The conflict has kept vessel traffic through the Strait of Hormuz at historically low levels, reducing the flow that once accounted for about one‑fifth of global oil and gas shipments.

U.S. Treasury Secretary Scott Bessent announced “Operation Economic Outcast,” imposing new sanctions on Iran and urging other nations to cease economic dealings with Tehran. Iran’s foreign ministry condemned the move as "U.S. economic terrorism" and called the sanctions unlawful.

Oil prices fell nearly 5% for the week amid reports of possible de‑escalation. Russian state media indicated a new cease‑fire framework between the United States and Iran, while Iran and Oman were reportedly negotiating a temporary commercial shipping route through the Strait of Hormuz. Pakistan, acting as a regional mediator, also signaled progress in peace talks.

Commodity and Rate Movements

Gold spot declined 3.42%, Bitcoin fell 3.51%, and Brent crude slipped 0.40% on the day, while WTI (LCO) rose 0.27%. The U.S. 2‑year Treasury yield rose 12.2 bps to 4.354% and the 10‑year yield rose 5.3 bps to 4.725%.

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