Warsh Watch: Fed Chair Remarks Could Set Tone

**Keith Lansford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Lansford, and here is Schwab's early look at the markets for Friday, August 28th. With NVIDIA's earnings capping a memorable reporting season and lifting markets, investors prepare for the final event of the week, remarks from Federal Reserve Chairman Kevin Warsh. The chairman who speaks at the Fed's Jackson Hole Symposium at 10 a.m. Eastern time today has been reticent to offer much outlook in terms of the economy and rates, but investors hope for more clarity as inflation remains well above the Fed's 2 percent target. His remarks are likely to come out shortly before the speech begins if the Fed adheres to past practice and there are no questions or answers afterward. Past Fed chairs have used this occasion to deliver a wide economic and policy view. Warsh, however, doesn't want the Fed to lead the markets by hinting how it might act. The market hopes to get some clarity from Warsh about whether the Fed still sees 2 percent inflation as its goal and, if so, how it plans to use monetary policy to help get there, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab. It will be very interesting to see what he focuses on, given his distaste for guidance or really for sharing much at all about his own thinking or the Fed's plans. Two topics to listen for are any updates on various task forces Warsh initiated and any comments on the Treasury's recent decision to raise the size of buybacks designed to lower yields. However, the Fed Chairman and Treasury Department normally stay in their own lanes, not commenting on each other's policies. Warsh isn't likely to give any guidance on the rate path, but might provide an update on communications policy. Perhaps the dot-plot of rate expectations, which Warsh has hinted he's no fan of, is on a short leash. It would not be surprising to see the dot's plot or other forms of forward guidance be eliminated, said Cooper Howard, Director of Fixed Income Research and Strategy at the Schwab Center for Financial Research. The Fed's favored inflation data, annual Core Personal Consumption Expenditures, or PCE prices, rose 3.3 percent, stripping out food and energy in July. Headline gains reached 3.7 percent. That said, monthly Core and headline PCE of 0.2 percent weren't too steep. Monthly changes are more important to policy makers since they reflect near-term conditions. As of late Thursday, futures trading plugged in 34 percent chances of a hike at the Fed's September meeting, according to the CME FedWatch tool. Odds rise sharply for at least one hike by the end of the year to almost 75 percent. We expect the Fed to remain on hold for the time being, Howard said. Inflation didn't surprise to the upside, which has given the Fed some time to be patient. The labor market continues to defy gravity, given geopolitical volatility, the sharp rise in inflation, and weak sentiment.
NVIDIA took the spotlight yesterday after earnings of $2.22 per share on revenue of $96.2 billion easily topped estimates. Perhaps more importantly, NVIDIA said on its call, it expects approximately 70% revenue growth in fiscal 2028, pushing solid AI demand farther into the future. Analysts had expected 44% revenue growth that fiscal year. Demand is accelerating, the company told analysts. Software results from CrowdStrike and Salesforce injected more vigor into a part of tech that's struggled all year. Late Thursday brought fresh software results from Workday and Autodesk. Both fell initially in response. But today is a blank for earnings. Next week features Broadcom and Snowflake. It's a big data week too, highlighted by next Friday's August Nonfarm Payrolls Report. Data is limited today, with primary focus on the 10 a.m. Eastern Time University of Michigan final August Consumer Sentiment Report. Consensus is for a headline of 51.0% unchanged from the preliminary reading. Inflation expectations were 3.3% long term in the preliminary reading, and bear watching today. Speaking of inflation, crude oil rose Thursday, partly reacting to stalled Middle East talks. Gold rally also stalled this week as peace progress flagged. The dollar trades near its 200-day moving average. Treasury yields crept up Thursday despite solid results from a 7-year note auction, where the 10-year note goes as Warsh Speaks might quickly indicate investor response to his message. Bitcoin's 24% move last week, its biggest weekly gain in more than 3 years, was fueled partly by an extraordinary burst of short-covering, but investors also jumped into long positions. Technically, major indexes continue to drift just below all-time highs, but don't show much enthusiasm to retest those. That's not to say it couldn't happen, but September tends to be a weak month, which may make investors reluctant to jump in. Indexes remain above their 50-day moving averages, a constructive element, technically.