The Jay$ vs Warsh Showdown

September 8, 2026

Kevin Warsh has Resting Hike Face.

I make that same face trying to watch soccer. Thank goodness the real football is back.

Last Week This Morning

• 10T: 4.78%

• 2T: 4.37%

• SOFR: 3.66%

• Term SOFR: 3.74%

• Fed Speeches

  • Barr: “If trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance. However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”

  • Waller: “If there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level.” “I'm going to paraphrase John Lennon here. Give disinflation a chance… I'm not going to say let's wait until next year, but let's just wait and see if we get some improvement on this.”

That Labor Market Tho!

Welp, that was a very good labor report. Good news for most Americans…maybe less so for those poor bastards in the real estate game. Thank goodness I’m not one of those…

The Good

• NFP added 162k and the UR held steady at 4.1%

• The 3-month average NFP is up to 71k

• Healthcare only contributed 13k of the 162k

• Full time jobs added 735k, while part time jobs declined 223k

• The unemployment rate held steady at 4.1% even though the participation rate improved

• Last month’s negative revision was revised positive

• Private payrolls added 129k jobs 

The Bad

• Seasonal adjustment contributed to the surprise

• Restaurant hiring was 59k of the 162k

• Average hourly earnings was disappointing

• 62k of the jobs came from a Leisure and Hospitality post-WC rebound

• The 3-month average NFP of 71k is still half of what it was in the spring

• Information and Financial Services posted job losses, but AI definitely isn’t impacting the labor market, right?

The Ugly

• Nothing really

Rates finished the day basically unchanged. Odds of a hike in two weeks only jumped to 60%.

Why?

Because we get CPI on Friday.

CPI

That jobs report told people like me to shut my trap about the labor market. That means the Fed can focus exclusively on the other half of its mandate, the stock market inflation.

Last month’s CPI came in at 3.4% and brought a sigh of relief. This month’s is expected to remain at 3.4%, but for some reason the market expects a hike. As a friendly reminder, three months ago CPI was 4.3%. Just like three months ago the monthly average NFP was 2x what it is currently but all of the sudden everyone says the labor market is red hot. It’s just whatever.

I still think Warsh is talking tough and hopes he doesn’t have to hike, but he’s definitely feeling the pressure. Tariffs/energy/AI all hitting the system simultaneously, so it’s difficult to point at one thing and rationalize patience.

I think the bigger message Warsh has been driving home is that it’s been 65+ months above 2% and that streak isn’t ending anytime soon. If the labor market really is hanging in there, the Fed could hike without it toppling over.

Rates

The 10 Year Treasury hit 4.8% because I was just thinking about how CRE has been almost too easy the last few years…

Two thoughts always pop into my head when the T10 approaches 5%.

• If it looked like an attractive yield at 4.5%, isn’t it a screaming buy at 5%?

• My boss in 2007 said, “The economy usually breaks itself when rates hit 5%.”

From SMBC’s excellent econ team: “Bonds have sold off for six consecutive months since March. Since 1970, there have been only three other such instances. Two of these episodes extended into a seventh month. We think this suggests a favorable risk-reward in positioning for lower yields.”

Maybe a Fed hike will be the catalyst…and if we don’t know the rate decision for sure after Friday’s CPI, we’ll know for sure next Wednesday.

We took Bloomberg’s Fed hawk/dove rhetoric-o-meter and turned it into a pretty graph. Note that Warsh is a presumed hike…and since he doesn’t disclose his vote, Trump won’t know for sure. He’s so wily.

The last meeting was 9-3 to hold. Hammack, Kashkari, and Logan all voted for hikes. Barr made comments on September 1 that sounded hawkish, so he’s the new entrant into the hike camp. Here’s the tally:

Hike: 5
Hold: 4
Unknown: 3

We need 7 votes for a change in rates. Warsh votes last. Assuming Bloomberg is right, check out how this plays out…

Hikes: 4
Hold: 4
The unknowns decide it.

Lisa Cook: Donald Trump is actively trying to remove Lisa Cook, so it’s not unreasonable that she votes for a hike. Now it’s 5 hikes to 4 holds.

Michelle Bowman: Trump-appointed Republican, probably a hold. Now it’s 5 to 5.

Jay$ pimp walks into the podium to cast his vote.

• If he holds, it’s 6 holds to 5 hikes

  • No matter what Warsh votes, we have a hold

  • Jay$ decided monetary policy again, emasculating Warsh (I might be overdramatizing this but it’s a holiday weekend and I was forced to write this against my will)
• If he hikes, that’s 6 hikes to 5 holds

  • Warsh holds, we have a tie and rates don’t change

  • Warsh hikes, we have a hike and everyone in that room knows Warsh cast the tie-breaking vote for rate hikes. Someone (cough cough Waller) might even tell Bessent who cast the deciding vote for a hike….

    • Jay$ boxed Warsh into a corner
      
      

Keep in mind, if they do hike, they are going to hike again. A lot of our hedging discussions center around how much they might hike and how to find the right strike. “If they hike, what are the odds they’ll end up hiking more than 3x?” Right now, those odds are 19%. Lots of energy spent right now on identifying the appropriate strike and term. “What the lender requires shouldn’t be my hedging strategy.”

The Week Ahead

CPI on Friday plus whatever news might break out on Iran.