Newsletter · · Ashutosh Agarwal

JPMorgan Economists Forecast a Hike as Warsh Dismantles Forward Guidance - Banks & the Rate-Cut Cycle - Week of August 28, 2026

Banks & the Rate-Cut Cycle for the week ending August 28, 2026. Podcast synthesis on JPMorgan's own economists forecasting a Fed hike this year off a pickup in bank credit, new Fed chair Kevin Warsh tearing up forward guidance ahead of his Jackson Hole debut, a former Fed governor saying the hawks have it right, and the low-coupon securities books that a 30-year near 5.3 percent could reopen.

Banks & the Rate-Cut Cycle

Week of August 28, 2026: JPMorgan Economists Forecast a Hike as Warsh Dismantles Forward Guidance

He's not giving long answers. He's evasive by design... he doesn't think it's the Fed's job to walk them through their next move.

Nick Timiraos, The Wall Street Journal, on Fed Chair Kevin Warsh

Last Friday this newsletter argued the whole banking group was really trading on a single event: new Fed chair Kevin Warsh's first speech at the Jackson Hole symposium, the Fed's annual gathering in Wyoming. This week the podcasts spent all their energy previewing that debut. The punchline was a surprise. The old question, will he hint at a cut, a hold, or a hike, turned out to be the wrong one. Warsh isn't there to tell markets what he'll do next at all. He wants to tear up the Fed's decades-long habit of "forward guidance," the practice of signalling its next move in advance. And Wall Street, as WSJ's Nick Timiraos put it, does not love it.

One timing note that shapes everything below: every podcast cited here aired between August 21 and 23, before Warsh actually took the stage. So this is a preview of his debut, not a reaction to it. There was no company-specific bank tape this week either, no earnings and no CEOs on the mic, so the story is told through Fed plumbing and the bond market, which is exactly where a bank's margin is decided right now.

Two plain-English terms you'll see throughout. Net interest income (NII) is what a bank earns on its loans and bonds minus what it pays depositors; net interest margin (NIM) is that same gap as a percentage. The big banks are asset-sensitive, so higher rates tend to help that spread and lower rates hurt it. A Fed that refuses to cut, or even hikes, is a tailwind for the group, not the threat this newsletter was named after.

TL;DR

  • The Fed's own economists just said the quiet part out loud: they expect a rate hike this year, driven partly by a pickup in bank lending. JPMorgan's chief economist flagged "a broader rise that we're seeing in bank credit this year." That is the bull case for bank margins in one sentence, from inside JPMorgan.
  • A September hike is now genuinely live, not fringe. A former Fed governor said the hawks "have it right," a widely-read newsletter writer says the Fed should hike on September 16 "to prove it's still independent," and JPMorgan sees a hot inflation print next week making September "a bit more live." The catch: the actual base case is still a later move, not September.
  • The bond market, not the banks, is the swing factor, and it's fighting the Treasury. A 30-year Treasury near 5.3%, a failed government attempt to push long yields down, and "term premium" creeping higher all cut both ways: great for fresh bank lending, dangerous for the low-coupon bonds banks are still carrying underwater.

What's new

Ranked by how much each should move a bank book, not by when it aired.

1. JPMorgan's economists forecast a Fed hike this year, and pinned part of it on a bank-lending upturn. On Global Data Pod, JPMorgan chief economist Bruce Kasman and JPMorgan Global Research's Joseph Lupton, both house economists rather than company operators, laid out a strikingly bank-friendly view. Lupton: "I'm comfortable with the idea that the Fed is not only not going to be cutting rates this year... but that they're going to be hiking rates this year," and "from a position of strength." Kasman explained why rates are climbing, and it maps straight onto bank revenue: "part of that has to do with what credit conditions are doing around not just tech, but a broader rise that we're seeing in bank credit this year," adding, "we're seeing business credit demand pick up particularly. And that is having an impact on interest rates." Why it matters: two things banks need most in a higher-for-longer world are loan demand and a Fed that doesn't cut. JPMorgan's economists just said both are showing up at once. This is the strongest, most concrete NII-bull signal we've had in weeks, and it comes from inside the biggest bank.

2. Warsh is dismantling forward guidance, and the bond market is throwing a fit. On WSJ's Take On the Week, WSJ chief economics correspondent Nick Timiraos described a Fed chair who has stopped narrating his own thinking: "He's not giving long answers. He's evasive by design... he doesn't think it's the Fed's job... to walk them through their next move." Timiraos added that Warsh's "tight-lipped, less is more strategy at the July press conference did not pay off," and "the bond market's been pretty wild recently." Why it matters for banks: a chair who refuses to signal his path leaves the long end of the bond market to sort itself out, and the long end drives mortgage rates, the value of banks' securities books, and how fast their underwater bonds heal. More uncertainty at the long end means a bumpier ride for those portfolios, in either direction.

3. A former Fed governor said the hawks "have it right," and the case for higher rates keeps gaining caliber. Also on WSJ's Take On the Week, Frederic Mishkin, former Fed governor from 2006 to 2008 and a textbook author on monetary policy, was asked point-blank whether the Fed should be "on their front foot ready to raise rates." His answer: "Yeah, I would answer yes," because "the economy does not have slack. We're at full employment." He also flagged the market's discomfort as "a mini inflation scare with these long bond rates go up." Timiraos noted core inflation "has been above 2% for five plus years" and that "there were three people who dissented in July because they wanted to raise interest rates." Why it matters: the entire original premise of this newsletter, a cut cycle grinding down bank margins, is now being contradicted by a former governor arguing the Fed should be tightening. For asset-sensitive banks, that is the friendly outcome.

4. A bank specialist mapped how Warsh's balance-sheet plan lands directly on the big banks. On The Julia La Roche Show, Chris Whalen of The Institutional Risk Analyst, an independent bank-and-mortgage specialist and the closest thing to an insider voice this week, explained what happens as Warsh shrinks the Fed's balance sheet: "all the big banks are going to have to go out and buy more T-bills for short-term investment... And they're going to have to manage the interest rate risk, too. It's not much, but it is still significant." He also delivered the week's sharpest reminder of the danger sitting in every bank's bond portfolio, using the Fed's own book as the cautionary tale: its mortgage bonds now have an average life of "probably 16, 18 years" with coupons "of two and two and a half and three percent." His blunt gloss on why that matters: "That's why Silicon Valley Bank failed. Their mortgage securities were prepaying and they kept buying them. They didn't realize that they were insolvent." Why it matters: the same low-coupon, long-dated bonds that sank SVB in 2023 still sit on bank balance sheets. A Fed that holds high heals them slowly; a long-end lurch re-opens the wound.

The debate

Bull NII case: the tailwind is now being confirmed by loan demand, not just rates. For a year the bull leaned entirely on "the Fed won't cut." This week it got a second leg. JPMorgan's economists tied rising rates to "a broader rise... in bank credit" and "business credit demand" picking up (Global Data Pod). That is the dream setup for the asset-sensitive giants: high rates on the spread and more loans to put those rates on. Add a former Fed governor saying the hawks are right (WSJ's Take On the Week), and the bear's original thesis, margins get crushed by cuts, is barely on the table.

Bear NIM case: the good news lives in the bond market, and the bond market is unstable. The bear's rebuttal has shifted from "margins collapse" to "watch what higher-for-longer does to the paper you already own, and to the customer." Two flags this week. First, that long-end paper: with a 30-year near 5.3% (per Timiraos) and Warsh unwilling to guide the market, the securities books that banks are still nursing back to health can move violently, and Whalen's SVB reminder is the extreme version of that risk. Second, funding costs. Whalen noted a saver "can go out and find an investment-grade bank that's paying you a point or more higher than a T-bill" (The Julia La Roche Show), a sign that in a higher-for-longer world, the fight to hold onto deposits stays expensive. The bull's spread is real; the bear says the bond book and the deposit bill are where it leaks back out.

Stocks in play

JPMorgan (JPM). Bull: it got the most direct read this week, and it was flattering. Its own economists forecast a Fed hike into a bank-credit upcycle (Global Data Pod), the cleanest statement yet of the higher-rates-plus-more-loans regime that suits the most asset-sensitive money-center franchise with the cheapest funding. Bear: the same JPMorgan house that likes the credit cycle is also the loudest skeptic of the government's attempt to calm the bond market. Kasman warned Treasury's actions are "really not going to have any material effect and could be harmful," a reminder that JPM's fortunes ride on a long end nobody fully controls. Next catalyst: Warsh's actual Jackson Hole remarks and the September 16 FOMC decision, then whether loan growth shows up in the third-quarter print.

Bank of America (BAC). Bull: as the most asset-sensitive of the giants, BofA is the purest beneficiary of a Fed that refuses to cut, since every basis point it holds flows toward BofA's vast, low-cost deposit base. The former-governor hawk talk and the JPMorgan hike call both tilt its way. Bear: no company-specific tape this week, so the read is entirely macro, and its asset sensitivity flips against it the day the Fed does surprise dovish. Next catalyst: the September FOMC itself, the single cleanest swing factor for BofA's margin.

Wells Fargo (WFC). Bull: a higher-for-longer backdrop with genuine loan demand, exactly what JPMorgan's economists flagged, is the setup in which the cheapest big-bank stock can finally turn balance-sheet growth into a re-rating now that its asset-cap era is behind it. Bear: the story is riding on the macro regime rather than any fresh company news this week, and Whalen's point about banks paying up "a point or more" over T-bills for deposits lands on funding-sensitive lenders like Wells. Next catalyst: third-quarter results proving growth is reaching the bottom line, not just the top.

Citigroup (C). Bull: the higher-rates, active-markets regime feeds Citi's trading and markets engine, and a bond market this volatile keeps client hedging and capital-raising busy, on top of a still-cheap valuation and an improving-returns story. Bear: no dedicated podcast on the name this week, and its fee tailwind is the most cyclical piece of the bull case; a sudden dovish turn would hit both its spread and its markets revenue. Next catalyst: next quarter's proof that return on tangible equity keeps grinding higher on its own steam.

Read-throughs

  • Super-regionals (USB, PNC, TFC): no name-specific tape this week, and the macro read is genuinely two-sided for them. JPMorgan's "business credit demand pick[ing] up" (Global Data Pod) is a tailwind for regional loan books that skew toward commercial and small-business borrowers. The offset is Whalen's securities-book warning: smaller banks carry the same low-coupon, long-dated bonds that a jumpy long end can mark down, and they have thinner deposit franchises to absorb the hit. Watch the securities portfolios at U.S. Bancorp, PNC, and Truist if the 30-year keeps testing 5.3%.
  • Deposit competition: the clearest new data point came from Whalen, that savers can find "an investment-grade bank that's paying you a point or more higher than a T-bill" (The Julia La Roche Show). A Fed that stays high keeps that fight fierce, and it is a bigger drag for regionals than for the money-center banks with the stickiest, cheapest funding.
  • Capital-markets and mortgage fees: Whalen said "earnings season has been extraordinary, especially in the mortgage space," singling out United Wholesale Mortgage with more to come. A volatile bond market and busy credit markets are, on balance, fee generators for the trading and underwriting desks at JPMorgan and Citi, the quiet engine still humming under the group. Chris Temple separately noted the Jackson Hole agenda includes stablecoins as "part of somewhat of a reset in the monetary situation" (The KE Report), a slow-burn issue for bank deposits and payments worth keeping on the radar.
  • The bond market and securities books: the single most important read-through this week. A 30-year near 5.3%, "term premium" (the extra yield investors demand to hold long bonds) creeping up on hyperscaler capex, and a failed government intervention to push yields down all point to a long end that could lurch. JPMorgan's Lupton said the Treasury's effort was "almost completely unwound," leaving only "diminished credibility... [that] should ultimately add some risk premium." A steady drift up heals bank bond books; a violent move re-opens the paper-loss wounds the group has spent two years bandaging.

What changed vs last week

Last Friday's issue said the entire group was trading on one event, Warsh's Jackson Hole speech "next Friday," and framed the week as a policymaker-caliber escalation of the hike-versus-hold debate.

What changed: the question itself. Last week it was "will Warsh lean hawkish or dovish?" This week the podcasts reframed it as "Warsh doesn't want to signal anything." He is dismantling forward guidance, and the market's discomfort with that is now its own risk factor (WSJ's Take On the Week). The live decision also moved from "next Friday's speech" to the September 16 FOMC meeting, with Chris Temple arguing the Fed "will raise rates next month" if it wants "to prove... it's still independent" (The KE Report).

What carried over and hardened: last week JPMorgan's strategists warned the Treasury's bond-market fix lacked credibility. This week JPMorgan's economists independently said the same thing, that the long-end forces are "fundamental" and the intervention "harmful," and its 30-year fully retraced. When two different desks at the same firm reach the same conclusion, the higher-long-rates theme is no longer a hot take. The asset-sensitive tailwind and the big banks' cheap-deposit edge also carried over intact.

What's genuinely new: the loan-growth leg of the bull case. Until this week the bull rested on rates alone. JPMorgan's economists adding "a broader rise... in bank credit this year" gives the NII story a second, more durable driver than the fee boom the bear keeps flagging as cyclical.