Arguably the biggest question in any market in 2026 is whether the Federal Reserve will touch interest rates. The market’s expectations kicked off aligned with Washington’s political will. Yet monetary easing never materialized, largely due to inflationary pressures from the Iran war.
To make things worse, the new Fed Chair Kevin Warsh took a turn on communication policy, keeping the cards much closer to his chest and leaving the market to mostly navigate on data.
The result has been the tidal wave of interest rate expectations, rising and sinking with every data point shift – particularly labor data and inflation.
Such was the case last week, as Warsh’s hawkish Jackson Hole debut repriced the odds of a September rate hike to about 57%, while the policy-sensitive 2-year Treasury yield climbed to 4.32%.
For investors, the coming nonfarm payrolls release is the next catalyst. A strong report could lock in tightening bets; a weak one could unwind them just as fast.
