“The Fed’s predominant focus right now should be on prices.”
Kevin Warsh, August 28th, 2026
August lived up to its long-standing reputation as a month of subdued market activity and volatility. The S&P 500 reached an all-time high on August 13, while the VIX index, which reflects market expectations for volatility over the coming month, reached its lowest level in 2026 of 14.25 on August 14.
The relative calm in August was also likely a reflection of markets remaining firmly in waiting mode.
The Waiting Game
Both prior to his nomination and during his confirmation, Chair Warsh was particularly careful not to signal his views on monetary policy. In fact, some of his comments were interpreted by market participants as slightly dovish, a stance that was likely well received by President Trump.
But a dovish posture would be at odds with the reality of persistent inflation, with risks of a renewed acceleration stemming from ongoing geopolitical tensions in Ukraine and the Middle East, as well as rising long-term interest rates.
Market participants have therefore been waiting for greater clarity on the stance the Fed may adopt over the coming months:
- Will the Warsh-Trump honeymoon come to an end as it did with Chair Powell?
- What preliminary conclusions will emerge this fall from the five task forces established by Chair Warsh?
Chair Warsh surprised markets slightly last week at Jackson Hole, with clear references to inflation and price stability. Interestingly, the Bank of Canada’s Governor also struck a surprisingly hawkish tone this week despite leaving the overnight rate unchanged.
The Fed’s upcoming meetings this fall, starting on September 16, will be particularly important in shaping the direction of markets across asset classes.
Waiting Game Waiting for the Midterm Elections
The uncertainty surrounding monetary policy is compounded by uncertainty around the US midterm elections. The US administration’s popularity has declined in recent months, both as a result of the lingering war in the Middle East, which has lacked widespread public support, and continued discontent over the rising cost of living and persistent price pressures.
There is a high probability that the Senate will remain under Republican control. Even so, blanket support for the administration across all policy areas is not guaranteed, as some Republican senators have already voted against the administration, including on the resumption of hostilities with Iran.
If the House flips, even with a Republican Senate, greater political uncertainty and partisanship are likely to follow, potentially placing additional pressure on the administration and complicating its policy agenda.
Waiting in the Middle East
After pulling out of the MoU with Iran, the US President appears to have adopted a strategy of “maximum pressure and wait,” in the hope that a struggling Iranian economy might eventually help bring the conflict to an end.
However, what is clear is that the “waiting game” does not only put pressure on Iran. A prolonged conflict is also likely to weigh increasingly on the global economy and add to inflationary pressures, both by squeezing energy markets as well as other commodities and through knock-on effects across a wide range of industries.
What Could End in the Waiting Game?
These three uncertainties – Fed policy, the US political outlook and the conflict in the Middle East – are closely interconnected. Greater clarity on any one of them could act as a catalyst, breaking the recent market calm and establishing a clearer direction across asset classes.
Once Labor Day is behind us, the waiting game may become increasingly difficult for markets to sustain, potentially bringing higher volatility and greater sensitivity to headlines. Markets could also test both the Fed and the administration through renewed upward pressure on long-term interest rates.
The calm of August is unlikely to last indefinitely. As summer conditions fade, the combination of monetary policy uncertainty, political risk and geopolitical tension could make for a far more active fall.
