Warsh Says Fed Conditions Stay Easy as AI Deals Expand
Federal Reserve Chair Kevin Warsh used Jackson Hole to sketch a policy framework, not to hand markets a rate call. Then a 35 billion AI compute deal landed that basically proves his point. If you are buying chips, money is still easy. If you are waiting for a cut to rescue dividend stocks, you are waiting for a speech that never came.
A quieter Fed, not a rate call
Warsh is 100 days into the job. He told the crowd to treat his remarks as a trail map. Just do not call it forward guidance. He wants a quieter Fed and less of a hall of mirrors where traders stare at the chair and the chair stares back at asset prices. Short term rates stay the main tool. Extra balance sheet tricks stay for real crises.
The funds rate has sat at 3.50 percent to 3.75 percent since December. The next FOMC meeting is September 15 and 16. After the speech, CME FedWatch put the chance of a hike into the 3.75 percent to 4.00 percent range near 55 to 60 percent, up from about 35 percent a day earlier. Warsh never said September is locked. He said he is committed to a discipline, not to a decision.
SPY still sits on a market that has been grinding toward highs since June. Traders wanted a hint. They got a lecture on process.
Conditions look easy on cash and credit
The line that matters for income investors is simple. Warsh said he would be hard pressed to describe broad financial conditions as restrictive.
Credit spreads on corporate bonds and speculative grade loans sit near the low end of history. Banks told the Fed that commercial and industrial loan standards are on the easy side. Issuance has been strong. Housing and agriculture feel the pinch.
Labor is not screaming for help. Unemployment is 4.1 percent. The four week average of jobless claims is near the lowest levels in decades. Real consumer spending is up more than 2 percent over the past four quarters. Private domestic final purchases, which he treats as a cleaner signal than GDP, are running near 3 percent this year.
Prices are the problem. Twelve month PCE inflation is 3.7 percent. The six month reading is 4.1 percent. Both sit well above the 2 percent target. Of the 199 pieces in the PCE basket, 54 percent rose more than 3 percent over the past year, versus about 32 percent in the two decades before the pandemic. Summer prints looked a bit better. Warsh said they do not show that the underlying trend has improved. He put 65 months of high inflation on the central bank.
Business capital spending is running hot. Equipment and intangibles are up about 9 percent over four quarters, the fastest clip since 2021. More than half of this year’s capex growth is AI buildout. S&P 500 profits are up more than 20 percent over the past year. Margins are fat. Volatility is low.
A 35 billion deal shows where the money still goes
Anthropic was reported to have signed a 35 billion computing deal with Lambda, a cloud shop backed by Nvidia (NVDA). Lambda puts Nvidia chips into a Texas data center being built by Hut 8 (HUT) in Nueces County. Nvidia also locked up the site capacity a few weeks earlier. Follow the chain and the chipmaker shows up three times. It backs the tenant. It helps secure the building. It sells the boxes that fill it.
Neither firm has announced the contract. The pattern still matters. Anthropic already lined up a 45 billion, six year deal with Nscale in West Virginia earlier in August, plus a 10 billion arrangement with Volta. Amazon has said Anthropic will spend more than 100 billion on AWS over the next decade. Token sales at the two leading labs are running at more than 100 billion a year, up over 500 percent from a year ago, per the figures Warsh cited at Jackson Hole.
Hut 8 is a former bitcoin miner. These firms already hold land, grid connections, and power contracts. Chips are hard. Megawatts are harder. NVDA is not begging for credit.
Dividend stocks do not get that cheap capital
Rate sensitive payers live in a different market. REITs, utilities, and classic dividend names still compete with a 3.50 percent to 3.75 percent policy rate and with a stock market that keeps feeding the AI complex. When the chair says credit is not tight, he is describing Nvidia’s world, not a 4 percent utility yield that used to look fine when the Fed was cutting.
SPY is the wrapper most income investors actually own. The index has been led by the same capital spending boom Warsh flagged. A quieter Fed does not rebalance that. It just stops promising a path. People hold rate sensitive duration because they expect a cut. The speech did not give them one.
Cash yields stay useful while the funds rate sits here. Quality payers with real coverage can live with this. What does not work is treating Jackson Hole as a buy signal for anything that moves when rates fall.
What this means for income investors
First, do not wait for the chair to telegraph the next trade. He said he will not. The September 15 and 16 meeting will be a data fight over PCE at 3.7 percent and unemployment at 4.1 percent, not a gift wrapped cut.
Second, treat the 35 billion Lambda deal as a conditions check, not as a reason to chase NVDA. If AI labs can still lock multi year compute at this scale, financial conditions are doing what Warsh described.
Third, keep the scoreboard on cash flow, not on speeches. Payouts that clear a 3.75 percent hurdle with coverage to spare still have a job. Payouts that only work if the Fed blinks are a bet on a decision he refused to make.