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* FIEND'S SUPERBEAR MARKET REPORT *

* August 31, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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WACO: Warsh Always Chickens Out?

Kevin Warsh switched Hawk Mode on at Jackson Hole.

He called the Fed’s 2% inflation objective a “firm, fixed target,” said financial conditions were not broadly restrictive, described the labor market as consistent with full employment and warned that policymakers still “have work to do” unless inflation is clearly moving lower. With headline PCE at 3.7% and its six-month annualized rate at 4.1%, he had plenty of evidence for the tough stance.

The markets reacted immediately. September rate-hike odds jumped from roughly 35% to nearly 60%. The dollar surged, the two-year Treasury yield rose sharply, gold fell more than 3%, silver dropped more than 4%, and Bitcoin weakened. Stocks briefly liked Warsh’s description of a resilient economy, but the rally faded and the major averages closed modestly lower.

The speech accomplished what Warsh wanted. It restored the threat of a rate hike without requiring him to deliver one.

Now comes the harder part.

Discipline, Not a Decision

The most revealing line came at the end of the speech: Warsh said he was committed to “a discipline, not to a decision.”

That is intellectually defensible. No Fed chair should promise a rate move three weeks before a meeting and before several important economic reports. But it is also the perfect escape hatch.

Warsh can sound like Paul Volcker while retaining complete freedom to act like every modern Fed chair when the moment arrives.

That brings us to a possible new Wall Street acronym:

WACO — Warsh Always Chickens Out.

He has not earned the nickname yet. September will tell us whether he does.

The market now sees about a 60% chance of a quarter-point increase at the September 15–16 meeting. Barclays was impressed enough by the speech to change its forecast from no more increases this year to hikes in both September and December.

But we have watched these probabilities rise and collapse repeatedly. Multiple rate cuts were once considered likely. Then no cuts. Then a July hike. Then an almost-certain September hike. Weak employment and merely acceptable inflation reports knocked the odds back toward 35%, only for one speech to lift them again.

The CME screen is measuring the market’s mood, not revealing Warsh’s future decision.

Friday Could Turn WACO Loose

The August employment report arrives Friday. Economists currently expect approximately 58,000 new jobs with unemployment holding at 4.1%. July produced a surprise loss of 23,000 jobs, while May and June were revised down by a combined 103,000.

A strong payroll number, firm wage growth and no increase in unemployment would leave Warsh with very little excuse not to hike. He has already said the labor market is at full employment, inflation remains broadly elevated and financial conditions are not restrictive. By his own Jackson Hole argument, another solid report should point toward action.

A weak number would change everything again.

Suppose payroll growth is near zero, unemployment rises or earlier months are revised lower. September hike odds could fall below 50% almost immediately. Wall Street would argue that the Fed should not tighten into a weakening labor market, and Warsh could cite his own warning against setting policy from stale data or one isolated report.

That would be a reasonable explanation for waiting. It would also reinforce the suspicion that the bar for a hike rises every time the Fed gets close to one.

Hot inflation is temporary.

High oil is temporary.

Tariffs are temporary.

Weak employment requires caution.

Stock-market instability requires caution.

The midterm calendar is supposedly irrelevant, but a rate increase weeks before a national election would generate enormous political pressure from a president who openly wants lower rates.

There is always another reason to wait.

Gold Was Hit by an Expected Hike, Not an Actual One

Friday’s metals collapse was based entirely on a change in expectations.

The Fed did not raise rates. Warsh did not promise that it would. Gold and silver fell because traders believed the probability of future tightening had increased.

That makes the next few weeks especially important for the metals. If September odds fall again, Friday’s decline may prove to be another violent shakeout rather than the end of the recovery. Gold had recently approached $4,700 and silver had challenged $70 because investors increasingly believed the Fed’s hawkish phase was all talk. One speech temporarily reversed that conclusion.

Warsh must now follow through to keep it reversed.

An analyst quoted by Reuters described the speech as possibly another case of speaking loudly while carrying a short stick. That is the entire WACO argument.

Gold and silver will remain vulnerable if incoming data stay firm and the Fed appears prepared to act. But if employment weakens and Warsh retreats to “data dependence,” the metals market may quickly decide that Friday’s hawkishness was theater.

The Long Bond Still Has Doubts

Warsh’s speech produced the clearest reaction at the short end of the Treasury curve. The two-year yield jumped nearly 13 basis points because it is closely tied to expectations for Fed policy.

The long end rose too, but it never needed much convincing. The 10-year finished near 4.73%, while the 30-year remained around 5.21%. Those yields were already elevated before Jackson Hole because long-term investors are worried about more than the next Fed meeting. They must price persistent inflation, $40 trillion of federal debt, future Treasury supply and the possibility that the Fed will eventually ease when something breaks.

A September hike could support the dollar and temporarily reassure the bond market. One quarter-point increase would still do little to alter the long-term fiscal picture.

A September hold accompanied by another hawkish press conference would be more dangerous. The short end might fall as hike expectations disappear, while the long end remains high—or moves higher—because investors conclude that the Fed is unwilling to act against inflation.

That would expose the difference between sounding credible and being credible.

The long bond does not need another speech.

It needs evidence.

September Is the WACO Test

Warsh’s Jackson Hole address was well constructed and genuinely hawkish. He acknowledged that inflation remains broad, accepted central-bank responsibility for five years of excessive inflation and refused to pretend that a couple of friendlier summer reports had solved the problem.

But the Fed has already held rates steady through every previous round of tough language.

Friday’s employment report may give Warsh a legitimate reason to remain on hold. If so, September hike odds will decline again, perhaps sharply. Wall Street will cheer the disappearing hike, gold and silver may recover, and October or December will become the next supposedly decisive meeting.

The market will forgive Warsh for waiting if the labor data are clearly poor.

It will be less forgiving if employment remains stable, inflation stays well above target and he still refuses to act.

Warsh said he is committed to a discipline rather than a decision.

September will reveal whether that discipline can ever produce a decision.

Until then, Hawk Mode is only a setting on the microphone.

And WACO is waiting in the wings.

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