Warsh's Warning: Rate Hike Looms as Stocks Outperform Cash

Kevin Warsh, the new Federal Reserve Chair, delivered a stern warning to investors at a recent symposium in Jackson Hole. He stated that 'price stability is not self-executing, nor is inflation necessarily mean-reverting.' This warning effectively dumped cold water on market expectations about the Fed's commitment to controlling inflation through rate hikes.

The S&P 500 has been flat since Warsh's statement, awaiting the central bank's next decision on whether or not to hike rates. The outcome looks likely to be a rate increase, set for September 16. This move could pose problems for nearly $8 trillion in U.S. money market funds.

Nearly all investors use these funds, and history suggests that there is one crucial move to make if you're among them: allocate capital into assets that grow substantially faster than the yield on money market funds.