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* FIEND'S SUPERBEAR MARKET REPORT *

* August 25, 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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Warsh Has One Speech to Hold the Line

Monday’s markets were mixed, but the underlying tension was not difficult to see. The Dow gained about 0.3%, while the S&P 500 lost 0.3% and the Nasdaq fell 0.8% as Nvidia and other technology leaders weakened. Treasury yields eased slightly, oil dropped after its recent run, and the dollar managed a modest rebound from three-month lows. The metals complex was uneven after its strong advance, while Bitcoin extended its rally toward $80,000.

Meanwhile, Washington supplied the usual combination of tariffs, sanctions and threats. Trade negotiations with Canada deteriorated again, while the Treasury Department announced a broader campaign to isolate Iran economically. Iran responded by blacklisting 45 tankers in the Strait of Hormuz and threatening fines, detention or confiscation of cargo. None of this suggests a calmer inflation outlook, yet markets have largely treated it as background noise while waiting for Kevin Warsh’s Jackson Hole speech.

Warsh will deliver his first Jackson Hole keynote as Fed chairman at 10 a.m. Eastern on Friday. The official symposium topic is financial innovation, but investors will be listening for something much more immediate: evidence that the Fed has a workable plan for inflation, interest rates and a bond market that has become increasingly skeptical of Washington.

All Talk Has Reached Its Limit

Warsh has received considerable mileage from hawkish language without delivering a rate hike.

Since becoming chairman, he has promised an unwavering commitment to the 2% inflation target, reduced forward guidance and allowed markets to believe that a hike remains possible. That helped support the dollar for a while, pressured gold and silver during the summer and allowed the bond market to perform part of the Fed’s tightening.

But the strategy is losing force.

The Fed has held rates steady repeatedly. Inflation remains above target. July employment weakened. Retailers are warning about the consumer. Treasury yields have risen to levels not seen in nearly two decades, while the dollar remains near multi-month lows despite those high yields.

The market is beginning to understand that the Fed may prefer to sound tough while waiting for oil, tariffs and the economy to solve the inflation problem on their own.

That is why Friday matters. Warsh no longer needs merely to repeat that inflation is too high. Everyone already knows that. He must explain what the Fed is prepared to do about it—and under what conditions it will finally act.

Another speech filled with “data dependence,” “uncertainty” and “well-positioned policy” may not be enough.

Three Ways the Speech Can Go Wrong

Warsh faces three possible market reactions, and none is especially comfortable.

If he sounds too hawkish, short-term yields could rise, the dollar may strengthen and technology stocks could resume their decline. A strong inflation warning would also revive expectations for a September hike, even though the economy appears increasingly vulnerable and the political pressure against a pre-midterm increase would be enormous.

If he sounds too dovish, stocks may initially rally, but the more important reaction could occur in the dollar and long-term bonds. Gold, silver and Bitcoin would probably move higher as investors conclude that the Fed is prepared to tolerate inflation. The 10-year and 30-year yields could also rise if bondholders believe easier policy will weaken the currency and leave inflation embedded.

The worst outcome would be another vague speech that satisfies neither side.

A confused message could produce the combination policymakers should fear most: a falling dollar and rising long-term yields. That would mean investors are demanding more compensation to own U.S. debt even as confidence in the currency declines.

Stocks can survive a modestly hawkish speech.

They can survive a modestly dovish speech.

A simultaneous selloff in the dollar and long bonds would be much harder to explain away.

The Dollar Should Be Much Stronger Than This

The dollar index was around 99 Tuesday morning, while the 10-year Treasury yield remained near 4.70%. Ordinarily, yields at that level should provide strong support for the currency by attracting foreign capital. Instead, the dollar has struggled through several weeks of losses and remains close to its recent lows.

That does not prove a dollar crisis is beginning. The currency is affected by relative interest rates, trade flows, intervention in the yen and many other factors.

But the combination is uncomfortable.

If yields are high because the economy is strong and the Fed is credible, the dollar should benefit.

If yields are high because investors fear inflation, deficits, Treasury supply and political interference with the Fed, the dollar may not benefit at all.

The market appears to be debating which type of high yield America now has.

Warsh’s speech could influence that judgment. A clear and credible policy framework might stabilize both the dollar and bonds. Another ambiguous promise to reach 2% someday may convince investors that the Fed is hoping inflation moderates rather than forcing it lower.

Treasury Is Complicating the Message

Warsh must also address the increasingly awkward relationship between the Fed and Treasury.

The Treasury Department recently expanded planned buybacks of long-dated government bonds after the 30-year yield rose above 5.3%. Officials describe the program as liquidity management, not an attempt to control interest rates. That distinction is technically valid, but markets interpreted the announcement as evidence that Washington is becoming uncomfortable with the natural clearing price of its own debt.

The initial bond rally lasted only one day.

Investors will now listen for any suggestion that Warsh supports Treasury’s effort, opposes it or considers it irrelevant to monetary policy. An appearance of coordination may raise fears of fiscal dominance—the idea that the Fed will eventually shape policy around the government’s financing needs rather than inflation. Open disagreement could create another form of instability.

Warsh needs to establish independence without starting a public fight with Treasury Secretary Scott Bessent or President Trump.

That is not an easy balance.

Tariffs and Iran Are Not Disinflationary

The latest tariff and Iran news make the inflation argument even more difficult.

New trade pressure against Canada threatens higher costs for vehicles, parts, steel and other goods. The expanded economic campaign against Iran is intended to choke off Tehran’s remaining commercial channels, but Iran still possesses its most powerful economic weapon: the ability to disrupt traffic through the Strait of Hormuz.

Tehran’s new tanker blacklist demonstrates that it intends to enforce its own navigation rules. The U.S. wants unrestricted international passage. Iran wants control, fees and leverage. Those positions remain incompatible.

Oil fell Monday as traders took profits and discounted the latest sanctions, but that does not mean the supply problem is resolved. The Strait remains heavily impaired, reserves have been drawn down, and one serious escalation could send crude and gasoline higher again.

Tariffs raise goods costs.

Oil raises transportation and production costs.

A weaker dollar raises import costs.

The Fed continues to insist that all of this will eventually fade.

Perhaps it will. But Warsh cannot build credibility by labeling every source of inflation temporary before it disappears.

What Warsh Needs to Say

A successful speech does not require Warsh to promise a September hike.

In fact, promising a specific move would be a mistake before the next employment and inflation reports. What markets need is a reaction function they can understand.

Warsh should explain that the Fed will distinguish between a temporary oil shock and inflation spreading through wages, services and expectations. He should define what evidence would justify a hike and what evidence would justify continued patience. He should make clear that the 2% target remains real without pretending that one quarter-point increase would solve tariffs, oil or $40 trillion of federal debt.

He also needs to address the balance sheet and Treasury market. Investors want to know whether recent purchases and buybacks are temporary liquidity tools or the early stages of a broader effort to suppress long-term yields.

Most importantly, he must show that the Fed is making decisions independently rather than constructing policy around Trump’s desire for lower rates before the midterms.

The bar is not impossibly high.

Clarity would help.

Consistency would help more.

Action eventually matters most.

The Market Reaction Will Be the Real Speech

Warsh’s prepared remarks will receive thousands of headlines, but the most important judgment will come from four markets.

If the dollar rises and long yields fall, investors will be signaling greater confidence in the Fed.

If the dollar rises and yields rise, the message will be hawkish but manageable.

If the dollar falls and stocks rally, markets will have interpreted the speech as dovish accommodation.

If the dollar falls while the 10-year and 30-year yields rise, the Fed will have a credibility problem.

That final outcome would be one of the worst possible setups for markets. It would raise mortgages, corporate financing costs and federal interest expense while weakening the currency and supporting inflation hedges. Stocks would eventually have difficulty ignoring it, especially the highly valued technology companies dependent on cheap and abundant capital.

Monday’s mixed action was a holding pattern.

Tariffs are back.

Iran is threatening shipping.

Bitcoin is rallying.

The dollar is fragile.

Long-term yields remain historically high.

And the market is waiting for one man to explain how all of this ends with 2% inflation and no serious economic damage.

Warsh does not need to solve every problem Friday.

He does need to convince investors that the Fed understands the problem.

If the bond market and the dollar reject his answer simultaneously, Jackson Hole may become the moment when “all talk, no action” finally stops working.

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