Warsh warning

Global rates are higher again after Kevin Warsh’s inflation warning.

• Global government borrowing costs hit another set of highs as Japan’s 10-year sovereign bond yield surpassed 3% for the first time in 30 years, while French and German debt extended selling that drove yields to 15-year highs. UK and US bonds followed the trend as Brent crude traded above $91 a barrel again, increasing inflationary pressures on the world economy. 
• Kevin Warsh's speech at Jackson Hole came across to us as a hawkish shift, and markets appear to have focussed on one particular line: "we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed… otherwise, we have work to do”. The market reacted with the likelihood of a hike in September climbing from 34% to 66%, in October from 62% to 93%, and the peak from 43bps by next June, to a second hike by March and onto 60bps by June. 
• The Core PCE Index, the Fed's preferred measure of inflation, remained at 3.3% in July, where it has stubbornly remained for three of the last four months, the one outlier being when it ticked up to 3.4% in May. The market's expectation for hikes ticked up slightly off the back of it, but this came before Kevin Warsh spoke at Jackson Hole.  
• UK retail price inflation leapt from 0.9% in July to 1.5% in August, the highest rate recorded since 2024, partly driven by a surge in food inflation, which jumped from 2.2% in July to 2.8% in August. The figures are still lower than the UK’s overall consumer price index inflation rate of 2.9%, but show that higher costs faced by retailers are starting to be passed on to households.

Source: Bloomberg; pricing as per 1 September 2026

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