The Fed turns more hawkish, markets reset expectations.

The Fed Chair reaffirmed commitment to the 2% inflation target and emphasized that price stability requires proactive action by the regulator. In his assessment, the U.S. economy remains resilient, and financial conditions overall are hard to describe as restrictive. Business investment in equipment and intangible assets over the past year rose by about 9%, with Warsh attributing more than half of that increase in 2026 to the development of artificial intelligence infrastructure. Profits of companies included in the S&P 500 increased by more than 20% year over year. Against this backdrop, Warsh allowed for the need for further monetary-policy tightening if inflation fails to show sustained movement toward the target level (Source: U.S. Federal Reserve System, 28.08.2026; Reuters, 28.08.2026).

The market interpreted the speech by the Chair of the U.S. Federal Reserve as a more hawkish stance by the regulator. According to Reuters, the probability of a rate hike at the Fed’s September meeting rose from about 35% to 60%. The reaction of major financial assets during August 28 is shown in Figure 1.

Fig. 1. Financial-market reaction to Fed Chair Kevin Warsh’s speech on August 28, 2026.

As can be seen in Figure 1, the most noticeable repricing of financial assets occurred after the start of the U.S. trading session and Warsh’s remarks. The yield on 2-year U.S. Treasuries, which is especially sensitive to monetary-policy expectations, rose from 4.226% to 4.36%, or by about 13.4 basis points. The DXY dollar index strengthened by about 0.57%, while the S&P 500 ended the day down roughly 0.25%. The strongest move was observed in the crypto-asset market: Bitcoin lost about 4%, but its decline began even before Warsh’s speech, so attributing the entire daily correction solely to the Fed’s rhetoric would be incorrect. (Source: author’s calculations based on TradingView data; Associated Press, 28.08.2026).

Further market dynamics will depend primarily on new U.S. inflation and labor-market data. If they confirm persistent price pressures, the probability of an additional rate hike may remain or increase, supporting the dollar and short-term bond yields. Faster inflation deceleration, by contrast, would reduce the need for further policy tightening. The Jackson Hole speech should be viewed as a signal of the Fed’s readiness to maintain tight monetary policy until convincing evidence emerges that inflation is returning to the 2% target.

Author: Assistant Lecturer, Department of World Economy and World Finance, Financial University under the Government of the Russian Federation Nikita Dmitrievich Klevanets.