The Economy Could Be Growing Too Fast for Warsh
Kevin Warsh held rates steady while two colleagues voted to hike, GDP revisions keep surprising to the upside, and a hot third-quarter print due tomorrow could force the Fed's hand in December. The question is whether SPY investors have truly…
The Federal Reserve held its target range at 3.75% to 4% on October 28, 2026. The 10-2 vote showed how close it came to raising rates. Lisa D. Cook and Beth M. Hammack disagreed because they wanted a 25-basis-point hike, six weeks after the Fed raised rates by 25 basis points on September 16.
The statement said “Economic activity is expanding at a strong pace,” stronger language than the “solid” pace it used in September.
The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) rose 0.35% and closed at $772.31, then traded at $768.87 after hours. The 10-year Treasury yield closed at 5.05%. A futures-based measure put the odds of a December hike at 86.0%, up from 78.3%.
Third-quarter GDP’s advance estimate comes out at 8:30 a.m. ET on October 29, 2026. September PCE inflation data come alongside it.
What Warsh Said, and What He Refused to Say
Fed Chair Kevin Warsh said first-half GDP was revised up to 2.4% from 1.8%. He also said that “the third quarter appears to have brought an even more rapid advance,” “led by healthy consumer spending.” He said third-quarter growth is likely above 3%, a hedged estimate.
He pointed to double-digit growth in business investment. He said, “It’s our responsibility to get inflation down.”
He still pushed back on the idea of overheating: “Is the economy running too hot? … That isn’t the judgment of most of my colleagues.” The statement did not commit the Fed to anything for December.
Revisions Show a Faster Economy Than First Reported
The first estimate put second-quarter growth at 1.5%, and the third estimate raised it to 2.2%. That gap matters because the Fed set policy for an economy moving faster than the early numbers showed.
Forecasts for the third quarter are higher. The Atlanta Fed’s GDPNow model stood at 3.3% on October 28, the New York Fed staff nowcast was 2.7% on October 23, and consensus is near 3.2%. On a prediction market, a contract that pays if growth passes 3.0% was bid at 63 cents and offered at 65 cents, so traders think that outcome is more likely than not.
Why the Inflation Mix Limits What Hikes Can Fix
Headline PCE inflation was 3.4% in August, and core was 3.0%. The San Francisco Fed attributes most of the excess to energy and core goods affected by the Middle East conflict and tariffs. AI-linked equipment added only about 0.2 percentage points.
Rate hikes cool demand, but they do little about oil supply or import duties. That means the Fed could be raising rates against inflation that responds slowly. Forecasts for September call for core PCE of 0.3% month over month and 3.1% year over year.
Andrew Hollenhorst of Citigroup (NYSE:C | C Price Prediction) said Warsh was “overstating the breadth of strength in the US economy.” Nuveen’s Anders Persson said that if growth stays strong, “we’re going to see more inflation.”
What the Fed Backdrop Means for SPY Investors
SPY is up 13.26% year to date, and trades near the top of its 52-week range of $629.28 to $781.62, but the market has already largely priced in a December hike. A prediction market priced a hold at 19 cents and a hike bigger than 25 basis points at 4 cents, so a hot report would mostly confirm what investors already expect.
The weak spot is concentration. Large technology companies lead the fund’s top holdings, and the biggest made up 7.58% of assets as of March 17, 2026. Those stocks tend to be sensitive to a 10-year yield above 5%. By comparison, the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) holds the same companies with less of that tilt.
SPY’s outlook weakens if September core PCE comes in above 0.3% and the 10-year yield climbs back past its October 5 high of 5.31%. If SPY closes above $781.62 after the release, investors are preferring the growth outlook. The second GDP estimate on November 25 and the Fed meeting on December 8-9 should answer the question.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
