Weekend briefing: Warsh warns US Fed still has ‘work to do’ on inflation

Economy / news

Warsh hints he is turning hawkish; US economic data weaker; Canada growth evaporates; Japan has a surprise; eyes on China Vanke; Bathla details uglier; UST 10yr at 4.73%; gold drops and oil eases slightly; NZ$1 = 59.1 USc; TWI-5 = 62.6

29th Aug 26, 8:55am by David Chaston

Storm and wind in Wellington harbour. [Photo by Dave Allen, NIWA]

Here's our summary of key economic events overnight that affect New Zealand, with news investors now expect US interest rates to rise after Kevin Warsh's speech earlier today.

In that Jackson Hole speech, he flagged that inflation in the American economy is too high but he offered no indication whether he favours keeping interest rates at current levels or pushing them higher. But he did restate that 2% is their inflation target. He gave no indication of rate policy but the inflation warning was enough for financial markets to conclude rate rises are more likely. Especially as he likely doesn't have the votes for a hold or cut.

In the real American economy, the Chicago PMI fell sharply in August to a contraction. The fall was driven by declines in New Orders, Order Backlogs, Production and Supplier Deliveries. It was their first fall in four months and discouraging, suggesting the the stockpiling trend may be ending.

Meanwhile, the US non-farms payrolls data has gone through their annual adjustment. That says their previous reports of job growth were overstated by -79,000. And that is an adjustment of weak results in the first place. It is another discouraging signal.

And the University of Michigan consumer sentiment August survey was updated too, confirming its early month reading, falling about -6% from last month and landing about -11% below a year ago. They noted continued worries that inflation will remain elevated for the foreseeable future. Current levels are near the post-pandemic lows. In fact they are near the low points this survey got in the pandemic.

In Canada, they reported a revised Q2-2026 GDP expansion of +3.3% for the year. They noted that their household saving rate reached 3.7% in the quarter as growth in disposable income (+2.1%) outpaced nominal household spending (+1.7%). But they also flagged that the July expansion has vanished, no expansion in this latest month. Given the problems with their southern neighbour, it is hard to see an expansion continuing.

Japan reported a 2.4% jobless rate in July, their lowest in more than a year and their second lowest since before the pandemic.

And it seems Japan can still surprise. Births from January through June were 342,068, up +0.8% (+2,788 more) from the same period in 2025. It was their first rise for the first half of the year in 11 years.

Malaysia said producer prices there rose at a very fast +9.7% rate in July, their fastest since the pandemic and before that since early 2017.

India reported that its industrial production eased back from a +9.5% expansion rate in June to +7.3% in July. But this was still a better result than anticipated. Meanwhile, Indian bank loan growth has stayed extraordinarily high, up +18.3% from a year ago.

In China, mirroring the Evergrande disaster, China Vanke’s first-half loss widened to -¥16 bln as sales slumped and debt pressure built. Upcoming debt maturities may trigger the end of it.

And the EU released the August results of its business and consumer sentiment surveys. The net outcome is improving sentiment, especially business sentiment. Only consumer sentiment remains low but it is marginally less so in August.

In Australia, it is becoming clear that the Bathla collapse is centered on loan fraud and false documents to private credit providers. The cascading impact on them is very concerning. Perhaps it should not be surprising because of the wider mortgage fraud problems that banks are facing via their broker channels.

The UST 10yr yield is now just on 4.73%, up +6 bps from yesterday at this time, down -1 bps for the week. The 30 year yield is at 5.22%, up +3 bps for the day, down -6 bps for the week. The key 2-10 yield curve is now at +38 bps (down -6 bps). Their 1-5 curve is now at +34 bps (-3 bps) and the 3 mth-10yr curve is at +98 bps (+2 bps). The China 10 year bond rate is unchanged at 1.70%, up +1 bps for the week. The Japanese 10 year bond yield is now at 2.92%, up +3 bps, up +4 bps for the week and a 30 year high. The Australian 10 year bond yield starts today at 5.09%, up +1 bp from yesterday, up +6 bps for the week. The NZ Government 10 year bond rate is now at 4.77%, also up +1 bp, and up +1 bp for the week.

Wall Street is down -0.3% on the S&P500 but up +0.6% for the week, while the Nasdaq down -0.5% but up +1.3% for the week. European markets were firmer overnight between London's +0.3% rise and Paris's +1.0% recovery. Yesterday Tokyo ended up +0.4% for a weekly +0.7% gain. Hong Kong firmed +0.1% yesterday for an end to its week down -0.8% while Shanghai dipped -0.1% yesterday to end up +1.3%. Singapore rose +0.3%. The ASX200 ended its Friday session up +0.6% to end the week unchanged. The NZX50 ended down -0.8% to end its week down -1.5%.

The Fear & Greed index is still in the 'neutral' zone from a week ago.

The price of gold is now at US$4462/oz, and down -US$142 or -3.1% from yesterday at this time, down -US$159/oz for the week. Silver has fallen -US$2.50 to just on US$66.50/oz and a -US$3 weekly fall or -4.3%.

Oil prices are down -50 USc from yesterday at just under US$83.50/bbl in the US, while the international Brent price is just on US$88/bbl and down -US$2. A week ago these prices were US$87/bbl and US$94.50/bbl respectively Hormuz transits have held low with six ships exiting over the past 24 hours (4 dark with transponders off) and six entering for new loads (2 dark), almost all Iran linked. The Red Sea activity is lower than yesterday with less than 20 each way at the Yemen chokepoint.

The Kiwi dollar is down -40 bps from yesterday at just on 59.1 USc, down -70 bps for the week. Against the Aussie we are down -10 bps at 82.6 AUc. Against the euro we are also down -10 bps at 51 euro cents. That all means our TWI-5 starts today at just over 62.6, down -30 bps today, down -70 bps for the week.

The bitcoin price starts today at US$77,663 and down -3.4% from yesterday at this time but up +0.4% from a week ago. Volatility over the past 24 hours has remained moderate at just on +/-2.6%.

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4 Comments

by Yvil | 29th Aug 26, 8:59am 1787950761

Will Warsh's bite match his bark ?

by Yvil | 29th Aug 26, 9:13am 1787951586

I don't think the Fed will raise in September but uf it does, it would really screw up Bessent's attempts at keeping the Bond yields down. It would be a little like a "F U" from Warsh to Bessent. Is Warsh indépendant enough from the US government to do that...? We're about to find out. I personally think not.

by Palmtree08 | 29th Aug 26, 11:06am 1787958383

"Births from January through June were 342,068, up +0.8% (+2,788 more) from the same period in 2025. It was their first rise for the first half of the year in 11 years."

More sardines for the tin. Oh joy.

by Colin Maxwell | 29th Aug 26, 11:27am 1787959676

Thank you for your report, David.

Re specifically your analysis of the market's reaction to Federal Reserve Chair Kevin Warsh’s Jackson Hole - I'm afraid it is impossible for me to look at any of this policy or related announcements without questioning the core validity of the metrics guiding the Fed.

While the market panics over whether a hawkish tone will trigger more rate hikes to hit a strict 2% target, a growing body of alternative economic data suggests that official CPI calculations heavily understate real-world cost pressures.

For the working class, the daily struggle to afford basic essentials, without enduring ever more spiraling debt, shows a stark disconnect between Washington's spreadsheets and the every day realities of the real economy.

To understand why official inflation feels like a fiction, we have to look at how the calculation methodology was quietly rewritten since the 1980s and 1990s, shifting the index from tracking the cost of maintaining a constant standard of living to a highly manipulated "Cost-of-Living Index."

This suppression is achieved through explicit mathematical gimmicks, starting with substitution bias, which assumes that if a primary good like steak becomes too expensive, consumers simply shift to hamburger - the model then lowers the weighting of steak, mathematically hiding the price spike.

Furthermore, through hedonic quality adjustments, if a car or a smartphone increases in price, statisticians use complex regressions to declare that the price did not actually rise because the consumer is receiving more technological "quality." The consumer still leaves the store with significantly less money in their pocket, yet the spreadsheet records zero inflation.

This illusion is finalized via Owners' Equivalent Rent, a metric introduced in 1983 that completely stripped actual house prices, property taxes, and mortgage interest rates out of the primary housing CPI metric, replacing them with a subjective survey asking homeowners what they think their house would rent for. This arbitrary substitution completely insulates headline inflation from real-world real estate booms and skyrocketing borrowing costs.

Also, a similar critique can be leveled at the Fed’s second mandate - maximum employment. The headline U-3 unemployment rate is arguably even more misleading than the inflation figures because it completely ignores structural underemployment. It masks the true economic pain by excluding discouraged individuals who have given up searching, as well as millions of part-time and gig workers who desperately need full-time hours. When you look at the broader U-6 metric, or factor back in those who have dropped out of the labor force entirely, the narrative of a robust job market completely collapses.

Compounding these contrived metrics is the structural flaw in the Fed's timing - its heavy reliance on lagging indicators. Metrics like CPI and unemployment do not look ahead - they report on casualties that have already manifest in the productive economy months prior.

Driving a multi-trillion-dollar economy by looking exclusively in the rearview mirror guarantees a destructive policy-lag. By the time the Fed observes a clear signal to pause or cut rates, the real economy has already been over-tightened into a downturn, transforming their policy adjustments into reactive damage control rather than proactive management.

To fully comprehend this disconnect, one only has to look at the name of the institution itself, which functions as a dual hoax. It is not "Federal" in any democratic sense, but rather a 100% privately owned banking cartel structured to protect commercial balance sheets over public interests.

Equally misleading is the word "Reserve," which has been rendered an absolute fiction since the Fed permanently slashed commercial reserve requirements to exactly zero percent.

This allows private banks to manufacture credit completely out of thin air via digital ledgers, leaving the working class to absorb the resulting inflation as these unbacked, manufactured dollars actively devalue the currency.

Both pillars of the Fed's dual mandate rely on deeply distorted numbers, meaning the mandates themselves are practically moot while central bankers fiddle around with the font of the breakfast menu on a financial Titanic.

This distortion doesn't just damage America - it directly corners the RBNZ. If the RBNZ attempts to aggressively lower local interest rates to rescue our own buckling domestic economy, a hawkish Fed forces the Kiwi Dollar down, instantly pumping imported inflation straight onto New Zealand supermarket shelves and petrol stations.

Ultimately, it feels entirely apt that this privately owned, constitutionally illegal pilfering machine (Dah Fed) holds its annual meeting at Jackson Hole. That is precisely where the real U.S. economy currently sits, in a massive hole.... and yet this central bank just keeps digging it deeper.