Baker Market Update 2026-08-28

Is it Friday already? It sure is! And not just any Friday… college football returns tomorrow with Week Zero, and Fed Chair Kevin Warsh steps to the podium in Jackson Hole this morning for his first keynote as Chair. Consider it a season opener of his own. Three weeks ago, payrolls fell 23,000 and the market all but crossed a September rate hike off the list. Let’s dive into this week’s data.

On Tuesday, The Conference Board’s Consumer Confidence Index slipped to 89.4 from July’s 90.2, the weakest reading since January and a second consecutive monthly decline. The Present Situation Index jumped 6.8 points to 121.2, while the Expectations Index fell 5.8 points to 68.2. Consumers feel fine about today and considerably worse about the next six months. The labor differential, which measures those saying jobs are plentiful versus hard to get, improved 4.8 points to +7.5%.

Also on Tuesday, July new home sales fell 10.5% to a seasonally adjusted annual rate of 607,000, a six-month low and short of the 620,000 expected. The median new home price dropped 2.3% from June to $393,800, now slightly below where it stood a year ago. Supply is the number worth watching here: 9.6 months at the current sales pace, the highest since January and well above the 4 to 6 months generally considered balanced. Builders are sitting on a record 115,000 homes that have not been started. Mortgage rates are near 6.7% and have risen from the year-to-date lows in late February.

Wednesday brought the week’s main event of the week. The July Personal Consumption Expenditures price index rose 0.2% on the month and 3.7% from a year ago, a touch hotter than the 3.6% expected. Core PCE, which strips out food and energy, also rose 0.2% and held at 3.3% annually. Remember that PCE, not CPI, is the Fed’s preferred inflation gauge, and core PCE has now been stuck in the low threes for months. That is the number the three dissenters at the July meeting are pointing at.

We also received the second estimate of second quarter GDP on Wednesday, which held at 1.5% annualized. The headlines were unchanged, but the composition improved, with the Bureau of Economic Analysis revising up both consumer spending and business investment. July durable goods orders rose 1.1%, up from June’s 0.5%, though the gain was concentrated in transportation. Excluding transportation, orders rose 0.4%, and core capital goods orders, a proxy for business investment, managed just 0.2%.

As we do every Thursday, we received the weekly jobless claims data. Initial claims fell to 203,000, below the 208,000 forecast and down from 207,000 the week prior, with the four-week average at 205,500. Continuing claims declined 18,000 to 1,778,000, also better than expected.

Which brings us to Jackson Hole. Chairman Warsh delivered his first symposium keynote as Chair this morning, and he spent it on inflation. He noted that PCE inflation is running 3.7% over twelve months and 4.1% over the past six, and that progress over the past two years has been modest. On the September meeting, he offered a condition rather than an answer, saying the Committee must “be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” He also made his break from forward guidance official, arguing that “a quieter Fed, more purposeful in its communications, is better able to meet its objectives,” and warning that when markets lean on the Fed’s guidance while the Fed leans on market prices, “we are all more likely to be blinded to new developments.” He closed by saying he is “committed to a discipline, not to a decision.”

Futures were pricing roughly a 35% chance of a September hike heading into this morning, and Warsh did nothing to settle it. Chances of a rate hike at the September meeting jumped up to 53% after his speech concluded. The market perceived his speech to have a “hawkish” tone. Currently, the 2-Year Treasury is sitting at 4.31% and the 10-Year Treasury is sitting at 4.69%. Have a great weekend!