[8/28 Market Update] New Fed Chair Warsh Turns Hawkish, September Rate-Hike Odds Jump from 35% to 59%

Hey everyone, Hirokichi here.

Today I’m covering the U.S. market on Friday, August 28. The real story wasn’t the stock prices themselves — it was a speech from the new Fed Chair. Kevin Warsh, who took over as Fed Chair back in May, gave his first-ever Jackson Hole speech, and it was enough to flip the market’s rate outlook in a single day. Let’s go through the numbers, with my own take mixed in along the way.

Indexes Pull Back, Nasdaq Slips to 26,450

On Friday, August 28, the S&P 500 closed at 7,722.06, down 0.12% on the day. The Dow Jones edged up 0.05% to 53,598.14, and the Nasdaq Composite fell 0.34% to 26,450.59. After Nvidia’s strong earnings drove gains earlier in the week (see my previous recap for details), it looks like profit-taking took over into the end of the week.

Charted out, you can see the pullback itself was actually quite modest.

As the chart shows, this wasn’t panic selling — the Dow even managed to close slightly higher. That said, the real story of the day wasn’t the indexes. It was the bond market reaction I’ll cover next.

New Fed Chair Kevin Warsh Sounds the Alarm on Inflation in His First Jackson Hole Speech

Kevin Warsh took over as Fed Chair on May 22, succeeding Jerome Powell, and his Jackson Hole speech on August 28 was his first big stage as Chair. Warsh said inflation “remains above our 2% target,” pointing to the latest PCE (personal consumption expenditures) price index, which was up 3.7% year-over-year, with core PCE (excluding volatile items) up 3.3%.

He argued that price stability is the Fed’s top priority right now, and that “there is more work to do” unless inflation is moving toward target “clearly” and “at a sufficient pace.” At the same time, he said the broader economy “appears to be showing impressive resilience,” acknowledging that growth itself remains solid.

That’s a notable contrast with Powell, who had been leaning more dovish before he left. In his first major appearance as Chair, Warsh made it clear inflation comes first — and the market read that as “hawkish, at least for now.” It’s a good reminder that a change at the top can reset the market’s whole set of assumptions overnight.

Warsh previously served as a Fed Governor from 2006 to 2011, so he has hands-on experience from the financial crisis era. He’s only been in the role for about three months, so the market is still trying to figure out exactly what kind of Chair he’ll be. That’s part of what made this speech such a closely watched event.

Rate-Hike Odds Jump from 35% to 59%, Bond Market Signals a “Bear Flattener”

The bigger move after the speech wasn’t in stocks — it was in rates. The 2-year Treasury yield rose sharply from the prior day, while yields on 30-year and other long-dated bonds barely moved. When short-term rates rise faster than long-term rates like this, it’s called a “bear flattener,” and it’s typically read as a sign the market is pricing in a higher chance of a rate hike.

The chart below shows just how sharp the shift was.

As the chart shows, CME FedWatch’s implied odds of a 25-basis-point hike at the September FOMC meeting (September 15–16) jumped from around 35% on Thursday, the day before the speech, to 59% afterward. CNBC described it as basically “a coin flip” for the September decision. Given that rate-cut talk had been the dominant narrative just a short time earlier, that’s a striking one-day shift in sentiment.

A rate hike understandably makes people nervous, but the underlying goal is to keep inflation in check, which protects the long-term value of money and assets. Rather than just watching stock prices move up and down, I think it helps to also keep an eye on why rates are moving — it changes how you read the headlines.

PayPal Slides 15%, Affirm Jumps 13% in Individual Stock Moves

Beyond rates, there were some big individual stock moves on Friday. Payments giant PayPal fell 15% after the Stripe–Advent International group, which had been circling a buyout worth over $50 billion, walked away from its offer. Since buyout speculation had been propping up the stock, the reversal hit hard.

On the flip side, buy-now-pay-later leader Affirm jumped 13%. CEO Max Levchin called it “our best quarter ever” on the earnings call, and the market also liked news of an exclusive partnership with Shopify Australia. Chipmaker Marvell Technology fell 7% on its own earnings, so it was a busy day for stock-specific moves — very much earnings-season behavior.

PayPal and Affirm are both players in the payments/BNPL space, but they landed on opposite ends of the spectrum. PayPal had been bid up partly on deal speculation, so the pullback when that speculation evaporated was sharp. Affirm, by contrast, was rewarded purely for its actual results. It’s a good example of how stocks trading on M&A rumors tend to swing hard when the story falls apart.

What to Watch Next: The September FOMC and Inflation Data

Here’s what I’m watching heading into next week:

(1) A string of key economic releases — including the jobs report and CPI (Consumer Price Index) — are due ahead of the September 15–16 FOMC meeting. Now that hike odds sit near a coin flip, the market’s reaction to each individual data point is likely to get more sensitive: strong numbers could push odds toward “hike confirmed,” while weak numbers could bring back “on hold after all.”

(2) What Chair Warsh says next. He showed a clearly hawkish tone in his first Jackson Hole speech as Chair, so the question now is how much of that tone carries into his next public remarks.

(3) For the stock market broadly, it’s worth remembering that a rising-rate environment tends to be tougher on high-growth tech names. Whether the Nvidia-driven rally can keep going, or whether rates put a lid on it, is something I’ll be watching closely next week. Short-term rate volatility is worth paying attention to, but I don’t think it changes the long-term growth story for U.S. stocks. If you want more background on Chair Warsh himself, I wrote a separate explainer on what to expect from the new Fed Chair back when he was first confirmed — worth a look if you missed it.

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*This article is for informational purposes only and does not constitute investment advice. Please make your own investment decisions at your own responsibility.

Keep at it, steady as always. See you in the next one!

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