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Morning Edition · Friday, August 28, 2026Published at 1:07 AM EDT · New York
Warsh Delivers His First Jackson Hole Speech With US Profits at a Postwar High
Corporate profits rose $400.9 billion in the second quarter, even as the share of business output paid to workers fell, the economic backdrop the new Federal Reserve chair must now address.
Kevin Warsh, who became chair of the Federal Reserve earlier this year, delivers his first address in the role on Friday morning, at the central bank's annual symposium in Jackson Hole, Wyoming. CNBC reports that he intends to use the speech for broad themes rather than the tactics of the three remaining policy meetings this year. The complaint from investors, set out by Axios, is narrower and more practical: Warsh has not yet described the conditions that would make him raise or cut interest rates.
The economic indicators he inherits are mixed. Consumer price inflation slowed for a second month to 3.4 percent in July, with core prices at 2.5 percent, according to the July report. That is above the 2 percent target, and has been for all of 2026. Traders have cut the probability of a September rate increase to about 42 percent, MUFG Research notes, partly because long-term yields have risen on their own.
The corporate data released this week is more revealing than the inflation figures. The Bureau of Economic Analysis reported that profits from current production rose $400.9 billion in the second quarter, after a $74.4 billion first-quarter gain, bringing profits to about 12.4 percent of gross domestic product, the highest reading since 2021. The Financial Times reports that pre-tax earnings are at their highest level since just after the Second World War. Over the same period, according to the Bureau of Economic Analysis, the share of nonfarm business output paid to workers fell to 52.9 percent, the lowest level in a series that begins in 1947, and real hourly compensation fell at a 3.1 percent annual rate.
A sustained gap between nominal earnings and real pay typically marks the late stage of a long credit expansion. Owners of assets and firms with pricing power receive new money first and hold it longest. Wage earners receive it last, after prices have already risen. Investors are positioned as though easier policy is coming: CoinDesk reported bitcoin holding near $80,000 early on Friday, up about 9 percent over the week, with solana up roughly 20 percent. Gold traded near $4,700 an ounce, and central banks bought a reported 289 tonnes in the second quarter.
Part of a tracked trend
Renewed Fed Tightening Fears Rattle Global Markets
Over the next 3-6 months stronger US data revives expectations of Fed rate hikes, driving a firmer dollar, equity selloffs in export-heavy markets, and pressure on hard assets as the IMF warns of recurring economic shocks.
What this means
Warsh sets the discount rate that the whole market applies to future cash flows, and he has not yet said what would move him to act. If he treats 3.4 percent inflation as acceptable for now, dollar-funded borrowers and long-duration equities gain, and demand for hard assets such as gold stays strong. If he instead names conditions for a rate increase, the pressure lands first on rate-sensitive equities, on emerging-market issuers with dollar debt, and on leveraged crypto positions, which have historically fallen when liquidity tightens rather than acting as a hedge against it. The profit and wage data matter separately: earnings are being supported by profit margins rather than by household income, which means consumer spending is the most exposed part of the economy if hiring slows.
What to watch
- Whether Warsh spells out the specific conditions that would trigger a rate increase, since his silence on that point is the main reason yields and equities have moved in opposite directions this month.
- How September rate pricing shifts in the hours after the speech, which will show whether investors heard tolerance for above-target inflation or a warning.
- The next reading on wages and hiring, because a further decline in real compensation alongside profits this high would mean household demand is being sustained by savings and credit rather than income.
Observations to monitor, not financial advice.
Synthesized from: Financial Times · CoinDesk
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Comments
1Aug 28, 5:07 AM
Without a stated reaction function, every incoming data print forces markets to infer Warsh's policy threshold from votes and speeches, widening the implied rate path across the three remaining meetings.