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US Rates Strategy Daily August 28, 2026 Troy Ludtka, US Economics troy.ludtka@smbcnikko-si.com 1 212-224-5483 Insufficient Inflation Progress Fed Chairman Warsh’s speech today was hawkish: “while this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved”, and “the Fed’s price -stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index , is a firm, fixed target. Price stability is not self- executing.” This signal is critical because earlier in the summer, for many Fed voters, openness to hiking was conditioned upon inflation cooling “soon” (shown below). Our economics team expects that this hawkish messaging reflects not only Chair Warsh’s support for a September 16 hike, but that the committee has moved in the direction of supporting a hike . Today’s remarks also indicate that Chairman Warsh is closely focusing on the headline PCE deflator as his preferred inflation metric — which is currently running at 3.7% y/y and just 2.2% on a three-month annualized basis.
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AI analysis
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Key arguments
- Fed Chairman Warsh's speech was hawkish, emphasizing that recent PCE and CPI readings do not indicate meaningful improvement in underlying inflation trends.
- Warsh views the 2% PCE inflation target as a firm, fixed objective that is not self-executing.
- The hawkish messaging suggests committee support for a September 16 rate hike.
- Warsh's preferred inflation metric is the headline PCE deflator, currently at 3.7% y/y and 2.2% annualized over three months.
Risks
- Inflation could continue to cool, reducing the need for a hike.
- Market may have already priced in a September hike, limiting further upside in yields.
- Global growth slowdown or financial stability concerns could deter the Fed from hiking.