Is Risk-On Too Risky? | Macro Mondays: August 31, 2026
Monday, 31 August 2026 · 2 min read · Listen to the episode ↗
In this episode of Macro Mondays, the discussion centers on Kevin Warsh's recent speech and its implications for Federal Reserve policy, particularly regarding interest rates and inflation measures. Andreas Steno highlights the divergence between the PCE and CPI indices, warning that inaction on rate hikes could lead to a "cry wolf" scenario. The episode also touches on geopolitical tensions in the Strait of Hormuz and anticipates a more aggressive stance from the European Central Bank, potentially impacting currency dynamics.
Kevin Warsh's recent speech has sparked debate, with some interpreting it as hawkish while others, including Andreas Steno, see it as consistent with prior Federal Reserve communications. Steno highlights a divergence in inflation measures, noting that the Personal Consumption Expenditures (PCE) index is currently higher than the Consumer Price Index (CPI).
Steno warns that if Warsh does not raise interest rates in September, he risks creating a "cry wolf" scenario regarding inflation, given his emphasis on the Fed's mandate to return inflation to 2%. He predicts that inaction could lead to a steepening of the yield curve, although current interest rates are not adversely affecting the AI sector, they are impacting agriculture and housing.
The market has already priced in expectations for a couple of rate hikes, and Steno anticipates a wobbly market direction as the midterms approach. There is speculation that 2027 may present a more inflationary environment, despite expectations for inflation to decrease toward the end of this year and into early next year.
In geopolitical developments, the U.S. has conducted attacks on rocket launches in the Strait of Hormuz to mitigate Iranian disruptions, with Iran's response being violent but contained. The crack spread peaked around the D-Day announcement, indicating a favorable market start, and there is a significant gap between crack spreads and oil prices, suggesting potential consumer disinflation.
Central banks are expected to respond to inflation driven by external factors, such as wars, and the supply side may differ by the time demand-side measures take effect. The spread between South Korean exports and the ISM index is at a record high for 2026, with expectations for the ISM manufacturing index to surprise positively. The European Central Bank is anticipated to adopt a more aggressive stance than the Fed in September, likely strengthening the Euro against the dollar.
This summary was generated from the episode transcript and can contain mistakes.