Warsh Shifts Market Focus to Inflation and Policy Restraint

Nvidia's strong earnings report kept the market afloat, but Kevin Warsh's speech at Jackson Hole shook things up. He emphasized that inflation remains above target and that the economy is still resilient.

Warsh refused to pre-commit to any specific policy action, instead leaving it for the incoming data to dictate the next move. This change in approach means that markets will now be more sensitive to upcoming economic releases, particularly payroll and inflation data.

The market's reaction was immediate, with front-end Treasury yields jumping, the dollar rallying, and gold losing ground. The S&P 500 slipped on Friday, while small caps took a bigger hit.

Goldman Sachs expects the Fed to remain on hold if August core inflation comes in around 0.2%, but this does not mean they will necessarily be right. The next two weeks are now crucial, with payrolls, producer prices, and consumer inflation all set to impact the market's expectations.