Key Wealth's investment team works through Fed Chair Kevin Warsh's first Jackson Hole speech as chair, two weeks of economic data the podcast missed while it was off, Nvidia's quarter and the semiconductor tape behind it, and the vendor financing now underwriting AI build-outs. Chief Investment Officer George Mateyo, Head of Equities Stephen Hoedt and Director of Fixed Income Portfolio Management Cynthia Honcharenko take the Fed, rates and equities in turn.
Host: Brian Pietrangelo
Also on: George Mateyo, Chief Investment Officer; Stephen Hoedt, Head of Equities; Cynthia (Cindy) Honcharenko, Director of Fixed Income Portfolio Management — all of Key Wealth
Published: 28 August 2026 on Key Wealth Matters
Episode page | 28 min
Key Takeaways
Warsh gave a framework and deliberately withheld a forecast
"I stand here today committed to a discipline, not to a decision." — Kevin Warsh, quoted by Cynthia Honcharenko
The speech was not dovish, and another rate increase stays on the table
Honcharenko: a strong economy, full employment and inflation still too high leave the option open if the data does not improve
Hoedt reads the market's response as hawkish
"That to me is unabashedly hawkish." — Stephen Hoedt
The two-year yield moved from a little over 420 yesterday to 432, inside 10 basis points of multi-year highs
The odds of a September hike jumped from 40% to over 50% on the speech
The Treasury can lean on long-dated yields, but not against every other bond market
Japanese, German and US 10-year yields are all heading higher together
Nvidia's numbers were fine and the semiconductor tape was not
The SOX failed at a downward-sloping 50-day moving average two weeks ago and sits below it
The marginal AI spend is funded with debt and equity rather than cash flow
Mateyo: the switch flipped around this time last year
Credit markets are pricing two AI spenders near junk
"two of them in particular that are trading near junk levels, namely Oracle and Meta" — Stephen Hoedt
Tilt portfolios toward the companies that use AI, not the ones building it
When the financing becomes the story, the cycle is no longer early
The Two Weeks the Podcast Missed
Pietrangelo opened by marking the death of Dolly Parton, calling her an absolute wonderful person and a music icon, and urging listeners who do not know her story to read it.
The show was off the previous Friday, so the recap covers two weeks. The only material item from the missed week was the minutes of the July Federal Open Market Committee meeting.
The minutes revealed nothing surprising: policymakers were still mixed, and three of them had dissented in favor of an interest rate hike.
Weekly initial unemployment claims for the week ending August 22 came in at nearly 200,000. Pietrangelo called the number extraordinarily consistent and a favorable signal that the job market remains very healthy.
The second estimate of second-quarter GDP came in at 1.5%, unchanged from the first estimate. Consumer spending stayed strong and real final sales to private domestic purchasers came in at 4.2%, which Pietrangelo read as a resilient economy.
July PCE inflation ran at 3.7% on an annualized basis, with the core index up 3.3% from a year earlier — still well above the Fed's 2% target.
Warsh's First Jackson Hole Was a Method, Not a Move
Honcharenko's read: the speech was much less about what the Fed does in September and much more about how Warsh intends to think about monetary policy going forward.
He telegraphed it in his opening. As Honcharenko relayed the line: "you can call it an outline, you can call it a trail map, just don't call it forward guidance."
Warsh's argument is that traditional forward guidance has overstayed its welcome, and that too much communication creates "a hall of mirrors problem, where markets are looking to the Fed for direction while the Fed is simultaneously looking at market prices for information."
What he wants instead is more independent price discovery from markets and more flexibility for the Fed — "a quieter Fed, one that's more purposeful in its communications and less focused on signaling the next policy decision."
On the economy he was upbeat: it appears to have strengthened, the labor market is stable and consistent with full employment, business investment is strong, corporate profits are growing, and AI investment could significantly increase productivity and potential growth. He called the moment "a hinge point in history."
His tone changed on inflation. He reiterated that 2% is a firm fixed target and said the Fed's predominant focus right now should be on prices.
Honcharenko called this the most important policy message in the speech: "We must be confident that underlying inflation is moving toward our objective, clearly and at sufficient speed. Otherwise, we have more work to do."
She views the speech as continuity with the July press conference rather than a change of direction. Warsh does not want to pre-commit the Fed to a path of rates, and does not believe the economy can be reduced to a mechanical reaction function where a particular data point automatically produces a particular policy response.
Nothing in the Speech Said the Inflation Fight Is Over
Honcharenko: nothing Warsh said suggested he thinks the Fed has finished the inflation fight. He went further and put the blame on the institution — "the responsibility for 65 months of sustained elevated inflation sits squarely with the central bank" — which she called a powerful acknowledgement of accountability from a Fed chair.
She flagged the overlap with Kansas City Fed President Jeffrey Schmid, who said this week that inflation remains stubborn and sticky and questioned whether policy is actually restrictive at a fed funds rate of three and a half to 3.75%.
Schmid's line, as Honcharenko quoted it: "I don't know what we're restricting currently with that rate policy that we're at today."
Warsh landed in a similar place in different words: credit and loan markets are showing few signs of policy restraint, and he said he would be "hard-pressed to describe broad financial conditions as restrictive."
The question Honcharenko expects to get louder into the September FOMC meeting: with a resilient economy, a labor market effectively at full employment, financial conditions that are not particularly restrictive and inflation still well above 2%, is the current policy rate actually doing enough?
She would resist reading the speech as an explicit signal that a September hike is coming — but "I also don't think that you can characterize this speech as dovish."
The mixed initial reaction in Treasury yields made sense to her: no September signal for the front end, but no reassurance that the Fed has finished tightening either.
Longer term, she expects the move away from forward guidance to produce more market-driven price discovery and potentially more interest rate volatility, because investors have to react to incoming data rather than to Fed officials.
Take Away the Guidance and You Get a Vacuum
Mateyo picked up Honcharenko's closing point: the Fed is not going to preempt its decisions or tell markets what it plans to do, where in the past it gave a fairly robust framework and some sense of where policymakers' heads were.
"I think they really got conditioned to respond to that guidance and when you take it away, it creates a vacuum." — George Mateyo
Three things are changing at once, in his framing: the messenger, with a new Fed chair; possibly the policy itself; and how the message is delivered.
All of it, he said, creates a lot of volatility in interest rates. Markets are digesting the speech in stride today, but a period of transition takes time to adjust to.
His longer view is deflationary of the drama: looking back in two years, investors will have been preconditioned or reconditioned to the new approach, and over a long enough period this comes out in the wash and is largely noise.
Hoedt: The Two-Year Yield Says This Was Hawkish
Hoedt broke in on the Fed before taking equities. His interpretation of the day is that the speech was hawkish, and the two-year yield is the evidence: it jumped from a little over 420 yesterday to 432 as he spoke.
The July high this year was 437 and last year's high was 441, putting the market within 10 basis points of multi-year highs in the two-year. His verdict: "That to me is unabashedly hawkish."
"the market's doing the Fed's job for it" — Hoedt said the market is tightening monetary policy in his view, so whether or not it is called forward guidance, Warsh is getting tighter policy out of the speech.
Equities were up 30 to 40 basis points on the day and taking it in stride. Hoedt thought people had expected roughly this outcome from the Jackson Hole confab, but that the short end was sending a clear message that things get tighter.
The probability of a September Fed hike jumped from 40% to over 50% on the reaction to the news.
The Treasury's 15 to 20 Basis Points, and Why Hoedt Doubts It Sticks
Pietrangelo had flagged volatility in the bond market this week alongside Treasury Secretary Scott Bessent's desire to purchase some bonds.
Mateyo asked about the other side of Constitution Avenue: the market pushing short-term rates up while the Treasury Secretary talks about bringing long yields down.
Hoedt said it has worked so far, but the scale is wrong — "the dollars that they're talking about are incredibly small compared to the size of the long end of the yield curve."
Pull up charts of the Japanese 10-year, the German 10-year and the US 10-year and they are all going in the same direction, higher — which tells Hoedt the regime is now inflationary or at least non-disinflationary compared with a few years ago.
Why the Treasury is fighting it: interest payments for the US government start to get very large at yields higher than today's.
By Hoedt's count the effort has pulled long yields down about 15 to 20 basis points over the last couple of weeks, which he called manipulative activity, and he is not convinced it sticks against a bond market that big.
The one thing that would change the answer is the Fed buying: there is no talk of it, but "the Fed's balance sheet is infinite if they choose to make it so."
Nvidia's Numbers Were Fine; the Semiconductor Tape Was Not
Mateyo set up the equity question around the year's momentous rise in earnings, much of it driven by AI and AI-related spending, and a big report this week from a major company fueling the AI trade.
He also put former New York Fed President Bill Dudley's criticism on the table: Dudley, whose old job carries an outsized vote on the FOMC, has been pointedly critical of the AI sector and thinks a peak in AI spending could arrive in the not too distant future. Mateyo characterized Dudley's view of what that would mean for the economy as pretty negative outright.
Hoedt's attention went less to Nvidia's earnings, which he called fine, than to the tape: "the price action in semiconductor stocks continues to be a bit concerning."
The semiconductor index, the SOX, rallied back to a now slightly downward-sloping 50-day moving average about two weeks ago, failed to take it out, and sits below it — even after Nvidia's fundamental numbers "said that the AI spend should be just fine for the foreseeable future."
Hoedt's picture: the market may have moved too far too fast for some of these names, and at best semiconductors and other AI ecosystem stocks need to mark time while the underlying fundamentals show up as productivity gains for customers.
The First Wave Is Often Not the Beneficiary
Hoedt is not arguing against the technology: AI is here to stay, and he expects the benefits to be discussed for years and years.
History is the caution. Through past episodes of profound fundamental economic change, the first and sometimes even the second wave of companies that created it ended up not being the beneficiaries, and in some instances had problems.
His market evidence is credit, not equity: CDS on hyperscalers spending large amounts on AI, with "two of them in particular that are trading near junk levels, namely Oracle and Meta", which he said sends a concerning picture about the overall spend.
"you've got to figure out a way to actually make money doing this in order for these companies to justify the literally trillions of dollars that they're talking about spending on infrastructure for it" — Stephen Hoedt, who added that the market is starting to show skepticism, as it well should.
Mateyo said Key Wealth has argued for the better part of a year that the switch flipped around this time last year, when the big companies funding AI spending moved from using the cash their businesses generate to relying on debt, and issued equity as well.
He reads the market as having come around to a more discerning AI trade — not one-stop shop, and not all boats rising equally at the same time in the same way. Their emphasis: "portfolios should be tilted slightly more towards AI adopters versus the pure enablers."
Hoedt agreed and pointed at the balance sheets of formerly pristine technology companies levering up, with parallels to Global Crossing and others that piled on leverage to build out infrastructure in the 2000 bubble, which both men lived through.
These are not dot-com shells: "They're not necessarily going to go down 95 or 100% if this doesn't become economically super viable for them." But with CDS expanding before another trillion or two of debt is raised, Hoedt called caution well warranted.
When the Funding Becomes the Story
Pietrangelo closed by asking Hoedt to tie the caution to Nvidia and other companies lending to their customers.
Vendor financing creates a circular issue, and Hoedt said the parallels back to the 2000 bubble are what caught his attention over the last month.
"when the financing becomes the story instead of the actual technology, that's when market participants need to start to pay more attention" — Stephen Hoedt
What he hears now is not how great the technology is. It is Blackstone and others getting together to backstop projects for Nvidia and others, so the funding mechanisms have become the story.
"When the funding is the story, start to pay attention." — whether the money comes directly from Nvidia as vendor financing or from other entities backstopping it, Hoedt said this is no longer early in the cycle.
Warsh has left another rate increase on the table without promising one, and the AI build-out has turned into a financing story — which Hoedt takes as the market's own signal that this cycle is late rather than early.
Products, Companies & Tools Mentioned
Nvidia (Earnings Hoedt called fine, and a lender to its own customers — the vendor financing he says has become the story instead of the technology)
Oracle and Meta (The two big AI spenders Hoedt says are trading near junk levels in the CDS market as they lever up)
The SOX semiconductor index (Rallied to a slightly downward-sloping 50-day moving average two weeks ago, failed to take it out, and sits below it)
Blackstone (Named as part of the group getting together to backstop funding for Nvidia-linked projects)
Japanese, German and US 10-year government bonds (All going in the same direction, higher, which Hoedt reads as an inflationary or non-disinflationary regime)
Global Crossing (Hoedt's parallel from the 2000 bubble — leverage piled on to build out infrastructure)
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