Fed Chair's Jackson Hole Speech Lifts September Rate Hike Probability

The Fed chair's address at Jackson Hole was expected; he noted that inflation is not slowing on a sustainable basis, implying further action. By emphasizing core inflation's progress toward 2%, he hinted at a more aggressive stance, which lifted the probability of a September rate increase from 36% to 57% and dragged down the S&P 500, Nasdaq, and Dow Jones.

Nvidia's earnings provided some support; without them the market performance would have been poorer. The chipmaker again exceeded forecasts, with Q2 revenue surging past $96.2 billion — more than double — and its data center segment reaching an all-time high of $89 billion.

Nvidia cautioned that margins would dip temporarily because of elevated memory costs, but stressed that the constraint is supply rather than demand. Even with competitive pressures and AI bubble fears, the company projects that the AI expansion will fuel 70% revenue growth in fiscal 2028, well above the 45% consensus estimate.

With that positive catalyst out of the way, the focus has returned to the inflation picture, and the situation appears unfavorable.

Geopolitical tensions remain a key driver of price increases. The U.S. and Iran have resumed exchanging strikes, cutting vessel movement via the Strait of Hormuz. This threatens to lift not just crude prices but also diesel — vital for farming — and natural gas, a particular concern for Europe.

The conflict between Russia and Ukraine continues to hamper Black Sea shipping, a vital corridor for wheat.

Rising trade disputes with Canada and China compound inflationary pressures, possibly compelling central banks such as the Fed to tighten further. This comes as U.S. PCE inflation increased 0.2% in July, bringing the yearly figure to 3.7% — both exceeding forecasts. A robust economy and near‑full employment add to the difficulty.

Unsurprisingly, the U.S. 10‑year note yield climbed to 4.75%, the highest since January 2025, while gold declined.

So, does the Fed ultimately plan to raise rates in September?

On the surface, the conditions seem right, but Chair Warsh has repeatedly stated his commitment to returning inflation to target without concessions, and so far little progress has been made. If that pattern repeats, market participants could start questioning the Fed's independence.