Warsh Says Fed Must Act if Inflation Stays High

Summary

Federal Reserve Chair Kevin Warsh signaled the Fed is prepared to act if inflation does not move clearly and quickly toward its 2% target, while describing the economy as strong. Schwab's Kevin Gordon and Allspring's Ann Miletti discussed the implications for rate policy, equity positioning, earnings-driven market rotation, and Nvidia-related financing risks.

• Warsh placed responsibility for sustained elevated inflation on the Fed and said confidence in progress toward 2% is required.
• Gordon viewed the speech as clearer and reaffirming the PCE/2% target, but still wait-and-see on September depending on CPI/PPI.
• Miletti said equity investors are focused on fundamentals and the direction of rates, with corporate borrowing costs rising.
• Miletti favors industrials, especially small/mid-cap industrials, tied to AI spending and supply-chain realignment.
• Miletti still sees opportunity in small/mid caps and emerging markets.
• Gordon highlighted that strong earnings growth can coincide with muted S&P 500 gains and rotation toward small caps.
• Gordon flagged monitoring Nvidia-related circular financing and CapEx risks as mega-cap leadership has broken down.